Polish and other central European bond yields rose yesterday after reports the European Central Bank could ease off its bond purchase programme and many other emerging assets also weakened, with stocks falling 0.4%.
While an ECB spokesman said the bank had not discussed reducing the pace of its monthly bond buying, a Bloomberg report that the 80bn a month programme would probably start winding down, has spooked markets to a degree.
Eurozone yields hit two-week highs and the impact was felt across central Europe which has attracted investors fleeing crushingly low yields in Germany and elsewhere.
Polish 10-year yields rose 4 basis points to hover just off recent three-month highs and yields rose 2-3 bps across the rest of the curve. Hungarian 10-year yields gained 3 bps while shorter tenors were up 1 bp.
“The fact they are talking of getting out of it tells us the ridiculous levels on Bund yields are not going to persist indefinitely. Consequently Poland looks very exposed,” said Peter Kinsella, head of emerging markets research at Commerzbank. “It gives an upside impetus to yields in central Europe,” Kinsella said, adding that 8%-9% yields in Turkey or South Africa offered better protection from ECB tapering. The Polish zloty was flat against the euro before a central bank meeting that should leave rates unchanged at 1.5%.
But markets will look for clues from the governor’s speech about the pace of future rate rises especially in light of the ECB taper rumour.
The zloty’s fate is tied closely to the euro with local bonds’ reacting to ECB newsflow, ING analysts wrote, predicting more euro/zloty upside.
“Recall that back in the second quarter 2015 during the Bund sell-off, euro/zloty appreciated...from just below 4.00 to close to 4.20 while longer dated (government bonds) sold off,” they said. The forint however rose 0.2% benefiting from data showing retail sales rising an annual 4.3% in August.
