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BRE Bank ob Polish fixed income: The rally has (finally) stopped

November 16, 2012
The quite extreme rally on Polish bonds that we observed for the past couple of weeks seems to have finally reached some exhaustion point. Bond market seems a bit more balanced here with mixed interest and finally some real flow to sell. Rates have also rebounded from recent lows by few bps. Recent comments from MPC members were generally dovish, however very mixed with calls varying from cautious approach (Winiecki) to quite extreme cuts (deeper than 175bp in total - Chojna- Duch). Outvoting Governor Belka during October’s meeting also confirms that rate path isn’t really decided yet (apart from another 75bp cuts which are likely to be delivers within next few months). If market continues to consolidate on current levels, some correction in rates is likely, however we don’t think it could be significant. Next macro data will keep confirming slowing CPI and pointing to a slowdown deeper than current market consensus. That should make the MPC even more dovish and likely increase easing expectations even further, be it the total amount or pricing cuts by more than 25bp at a time. We already thought a while ago that the rally had been approaching an end but apparently it’s still too early to be negative on rates here.