Poland: What does fiscal change mean for bond positioning? – BNY

Polish fixed income offers an asymmetrical upside profile, in Geoff Yu’s view, supported by real rates, NBP hawkishness and peaking inflation. He notes that investors hold relatively fewer Polish bonds than Hungarian paper, with Polish holdings having halved amid pressure on performance from Eurozone yield-curve steepening and fiscal risks. Potential fiscal reform and eventual ambitions to join the Eurozone could, he argues, bring lower borrowing costs.

Can Under-Owned Polish Bonds Deliver Upside?

"This contrasts strongly with Poland, where bond holdings have halved, while Eurozone holdings have fallen to their lowest levels this year as broader yield-curve steepening and fiscal risks weigh on performance."

"Meanwhile, headline inflation in Poland is the highest in CEE y/y, but core inflation is surprisingly flat despite the high level of current household subsidies. Weak core inflation is contributing to a very conservative tightening path for the National Bank of Poland (NBP), but high headline inflation increases the risk of expectations becoming unanchored."

"Fiscal change in Poland offers favorable risk-reward. If Hungarian bonds continue to outperform, we see a case for the remaining non-Eurozone CEE economies to revisit their fiscal frameworks."

"Politically, this is difficult in Poland, but if Hungary’s experience makes an overwhelmingly positive financial case, a shift in the domestic narrative, coupled with low external holdings, could generate strong performance."

"We expect real rates, NBP hawkishness and peaking inflation to drive performance, with asymmetrical upside based on flows and holdings."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)