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BRE Bank on Polish Fixed Income: Preparing for a Cut

September 28, 2012
Market rallied strongly last week on both bonds and rates. Swap curve moved down by more than 10bp along with bonds up to 5y. 10y papers outperformed the rest and gained ca. 20bp. Interview with NBP Governor Belka was quite dovish, as ’markets should prepare for an easing cycle’, we think it will start already next week. Also monetary policy guidelines stating that ’Polish CB to be flexible on CPI return to target amid shocks’ suggest that rate cuts could happen rather sooner then later. EUR 2.3bio credit lines granted from EIB would reduce next year borrowing needs, no risk to Polish rating according to S&P also somehow justifies the flattening move. We remain positive on rates here, we think however that front end and the belly of the curve have greater value, as we expect rate cut next week followed by weak set of data which altogether should push yields even lower.