The zloty remains on the path of weakening in relation to the euro, which is determined by persistent local factors (dispute with the European Union and Brussels’ lack of consent to the Polish National Reconstruction Plan, the still mild attitude of the Monetary Policy Council compared to the region) and the deterioration of investment sentiment due to the intensification of the COVID-19 pandemic (another lockdown in Europe).
The latest source of the weakness of the Polish currency
– after raising the EUR / PLN exchange rate – technical analysis and the will to attack at the level of 4.73 are also at the long-term highs. We are counting on maintaining the negative trends this week. The zloty may once again remain one of the worst performing currencies in emerging markets. The relatively better stance of the Czech koruna and the Hungarian forint is related to the determination of the local banks to fight inflation and the willingness to attract foreign capital in order to stabilize local currencies.
Additional pressure on the value of the zloty is created by the possible end-of-year effect, ie determining the annual profit of the National Bank of Poland (95% paid to the central budget) by fixing. Friday’s comments from the NBP governor about the expected lack of reaction of the bank to the weakening currency are also conducive to weaker zloty. Due to all the above-mentioned factors, we do not expect an imminent appreciation of the zloty. The more so as the scale of monetary policy tightening in Poland in December remains unknown.
The yield on domestic bonds flattened sharply last week
The yield on the long end of the curve increased by as much as 32, reaching the level of 3.29% (temporarily, however, it was even 3.38%). Debt with a 2-year maturity, on the other hand, appreciated lowering the profitability by 15 bps to 2.93%. Importantly, due to last week’s changes, the yield curve has ceased to be inverted (currently longer maturities offer higher profitability than short-term debt).
The highlight of the week was the only November debt buyback auction by the National Bank of Poland
As expected, however, it was extremely modest. The NBP acquired only two series of bonds (treasury PS1026 for PLN 250 million and the debt of Bank Gospodarstwa Krajowego FPC0328 for PLN 116.5 million). On Friday, the NBP sold NBP bills as part of the basic open market operation for the amount of PLN 264.2bn against PLN 277bn of reported interest.
In the core debt markets, the last days saw clear drops in yields related to increased risk aversion and increased interest in bonds as a safe asset. It was particularly visible in the case of Bund, where the decline in yields was additionally driven by mild comments from the president of the European Central Bank about the slim chances of interest rate hikes next year. On the other hand, opposing comments were made by the US central bankers, which hampered the decline in profitability related to risk aversion. As a result, the Bund’s profitability decreased by 7 bps to -0.34% and the American 10Y bond by 2 bps to 1.57%.
Treasury bond volatility remains high. The 10-year debt, which has been stabilizing until recently while remaining insensitive to signals from the environment, has now accelerated to sell off, despite an increase in the value of underlying bonds. Therefore, with such an emotional and unstable market, it is difficult to come up with an effective forecast. Certainly – following changes in monetary policy – we are facing a period of medium-term increases in the profitability of treasury securities. For the time being, however, as mentioned above, the valuation of the domestic government debt remains volatile.