Bond market surge continues

Individuals most frequently chose two-year fixed-rate bonds, whose share in the sales structure was 79.5 percent. The second most popular bonds were four-year ones at 9.8 percent, followed by ten-year bonds (5.8 percent) and three year olds (4.9 percent), the ministry said.

"July is a successive month in which interest on all bonds stayed at the level of the previous month. The interest rate on two-year Treasury securities is 2.00% per annum. It is still the preferential rate for individual customers, higher than the yields on similar bonds available for wholesale investors," said the deputy director of the Public Debt Department of the Ministry of Finance Bogdan Klimaszewski, quoted in a statement.

Other bonds in the first interest period bear interest as follows: 2.10 percent for three-year bonds, 2.30 percent for four-year bonds and 2.50 percent for 10-year bonds.

The Polish bond market could be affected by fears among investors that the pre-election period will see an escalating war of promises over public spending between the competing main parties. Opposition Law and Justice (PiS), for example, has promised to spend an extra USD 10 billion and pay for it with raised taxes on banks and supermarkets.

Polish bond yields – the effective interest rate on the government’s debt and an indication of the extent of investors' aversion to risk - rose to a 10-month high in early July. This followed PiS saying it plans to increase child benefits, lower the retirement age and offer higher tax-free allowances if it wins the autumn election. The party plans to increase budget revenues by PLN 73 billion, including PLN 8 billion from taxes on banks and supermarket chains.

Polish bonds have lost 6.5 percent since the end of January. The yield on the 10-year bonds jumped 115 basis points in the period to over 3 percent, with the spread over the benchmark German bund at 249 basis points and near its peak in over a year. (jh)