BRE Bank on Polish Fixed Income: Awaiting MPC’s decision

Last week was surprisingly volatile, especially considering that Thursday’s holiday usually causes long weekend effects and therefore limited activity. Instead we observed some erratic movements on the market. It started with quite a sharp correction that hit mainly long end of the curve, followed by a strong rebound, which pushed 10y bond prices to fresh highs. Also yields in the very front end of the curve pushed significantly lower, which seems quite surprising, as a 125bp easing cycle had already been priced in before. We still think that this rally is getting a bit overdone and what could possibly push yields even lower is the MPC meeting next week, but only if rate setters turn to be extremely dovish or actually cut rates by more than 25bp. None of this is really likely to happen, so we think that payout from pay positions at current levels is quite assymetric, as 25bp cut followed by only mildly dovish comment might be read as a bit of disappointment. more