T-bonds strengthen but prospects bleaker, zloty remains stable ahead of Friday's macro data release

"We have witnessed a rebound on T-bonds in the last two days, and demand is visible, after a correction," BNP Paribas bond portfolio manager Blazej Wajszczuk told PAP. "Volatility was reintroduced to the market by MPC members as the market is trying to figure out how deep and how fast interest rates will fall."

The market focuses on the Friday industrial output reading, with the market hoping a weak result will make the MPC return to the scenario of interest rate cuts, the expert said.

"This would rather not be beneficial for the market, as weaker production means larger credit risk . . . and higher supply of papers," Wajszczuk noted, adding that a reading not weak enough relative to market expectations may trigger yield increases.

Next week's big auction of 2Y and 5Y papers will also limit price growth potential, the expert pointed out.

Poland plans ot auction PLN 5-10 bln in 2Y and 5Y papers on January 23, the Finance Ministry said in a statement.

The zloty holds close to levels recorded late Wednesday and

will likely be sensitive to global sentiment shaped by Thursday's US data as well as to Friday's domestic macro data, Millennium bank FX dealer Przemyslaw Winiarczyk told PAP.

"If the zloty fails to break 4.10 against the euro, it may go towards 4.15," Winiarczyk said. "December inflation turned out to be below the Monetary Policy Council's target [at 2.5%], which means room still exists for further rate cuts."

Poland's stats office publishes December corporate employment and wages, industrial output, construction output and producer price inflation on Friday, January 18, 14:00 local time.