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Bond market rally seen shortlived

PR dla Zagranicy
Jo Harper 04.08.2015 07:16
With the expected return of inflation in Poland, the first rally in six months on the domestic bond market could be shorlived, market watchers told the Bloomberg news agency.
Photo: V_hujer/Sxc.huPhoto: V_hujer/Sxc.hu

The bond market had been on its longest losing run in 18 years until July, when the country’s sovereign bonds stood at 1.4 percent.

But 10-year bond yields may be about to go back over three percent, Societe Generale, HSBC Holdings and the mutual fund arm of PKO Bank Polski told Bloomberg.

Expectations are that the improving global economic outlook will lead to increased US borrowing costs, which will impact global bond markets, the main indicator of an economy's capacity to pay off its debts.

October’s elections are also threatening to dampen investor confidence, Bloomberg suggests.

Law & Justice (PiS), the opposition party that is campaigning for increased spending and bank taxes, has around 43 percent support, versus about 29 percent for the ruling Civic Platform (PO).

Inflationary expectations in the euro-zone are expected to pick up and yields in Poland to rise as a consequence.

In July core inflation in the euro-zone unexpectedly accelerated to one percent, the fastest in 15 months while in Poland deflation is likely to turn into inflation of around 0.5 percent annually by December.

The yield on 10-year zloty notes fell 37 basis points in July, with a premium over German bunds at 229 basis points, 27 basis points below a 13-month high reached on June 29.

The yield on 10-year bonds may drift to 3.5 percent as the pre-election period weighs on investors. (jh)

tags: bond market
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