Poland: Fiscal change and bond positioning – BNY

Geoff Yu highlights that Polish bonds are under-owned compared with Hungarian paper, with holdings having halved as Eurozone steepening and fiscal risks weighed on performance. He argues that potential fiscal reform and eventual Eurozone ambitions could be rewarded by lower borrowing costs, while real rates, NBP hawkishness and peaking inflation support an asymmetrical upside profile for Polish fixed income.

Under-owned Polish bonds offer 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.)