Poland Plans Biggest Bond Issue Since August as Yields Increase on Rates
2011-01-05 17:59:38
Poland plans its largest sale of bonds at a single auction since August today as speculation of higher interest rates pushes up borrowing costs.
Poland may sell as much as 6.5 billion zloty ($2.2 billion) of January 2013 and April 2016 bonds, according to the Finance Ministry. The two-year yield is likely to be at least 4.9 percent, the highest level since an auction in February, and the five-year debt will yield at least 5.6 percent, the most since December 2009, according to analysts at PKO Bank Polski SA, ING Bank Slaski SA, Bank Handlowy SA and Bank Pekao SA, and data compiled by Bloomberg.
Yields on Polish bonds have jumped this week after the Finance Ministry said Jan. 3 inflation probably quickened to 3.1 percent in December, the fastest in a year, while comments from officials intensified speculation rates will rise. Poland should raise the main interest rate “preemptively” after keeping it at a record low of 3.5 percent for 18 months, central bank Governor Marek Belka said, Reuters reported late yesterday.
“The auction today will be a test of investors’ sentiment at the start of the year,” Arkadiusz Urbanski, an analyst at Bank Pekao, wrote in a note to clients. “The demand will probably cover the supply, but since investors may ask for a higher premium, the ministry may sell only a part of the planned offer.”
‘More Hawkish’
Investors today put more money on the chances of a rate increase. Three-month forward-rate agreements, contracts used by investors to bet on changes in interest rates, rose 14 basis points to 4.47 percent as of 10:55 a.m. in Warsaw, the biggest increase since October. The contracts are trading 52 basis points above the three-month Warsaw Interbank Offered Rate at 3.95 percent, for the widest spread since Oct. 15.
The zloty appreciated as much as 0.9 percent today and last traded 0.3 percent higher at 3.9082 per euro, the strongest intraday level in almost two months.
Poland may start raising rates in January as the zloty strengthening is unlikely to offset inflation, Adam Glapinski, a member of the Monetary Policy Council, said Jan. 3. Andrzej Kazmierczak, another rate setter, said the bank should consider an increase in the second quarter “at the latest,” PAP newswire reported the same day.
“Inflation is rising and comments from policy makers are becoming more hawkish,” said Miroslaw Budzicki, a Warsaw-based analyst at PKO Bank Polski. “A rise in interest rates is just a matter of time.”
Yield Predictions
Poland “shouldn’t have problems” selling bonds at the auction and whether it decides to raise the maximum amount will depend on the prices offered, Deputy Finance Minister Dominik Radziwill said in an interview yesterday. The country has already covered 7 percent of 2011 borrowing needs, Piotr Marczak, head of the Finance Ministry’s debt department, said in an e-mailed statement on Dec. 30.
PKO in Warsaw predicts an average yield of 4.90 percent to 4.95 percent for the two-year debt, and 5.60 percent to 5.65 percent for the five-year notes. ING Bank Slaski, the Warsaw- based unit of ING Groep NV, expects about 4.90 percent and 5.62 percent. Bank Handlowy, the Polish unit of Citigroup Inc., estimates yields at 4.91 percent and 5.62 percent. Bank Pekao predicts a range of 4.9 percent to 4.95 percent for the two-year bonds and 5.65 percent for the five-year debt. All of the banks surveyed are among the 12 primary dealers at the Finance Ministry’s debt auctions.
The yield on bonds maturing in January 2013 rose 9 basis points to 5.03 percent today. For the week so far, the yield is up 23 basis points. A decline in the five-year bonds sent the yield 5 basis points higher to 5.68 percent today, prices on Bloomberg show.