Hungary's and Poland's 10-year bond yields are expected to rise in tandem by more than 30 basis points in the next year, partly tracking a likely rise in US Treasury yields, a Reuters poll of 17 analysts showed on Thursday. Monetary easing from the European Central Bank has helped shield assets in the European Union's emerging markets, along with healthy economic growth and stability in the region's economies.
But the region's high-yielding government bonds will become relatively less attractive if the United States Federal Reserve continues to lift interest rates. According to the median forecasts in the March 23-24 poll, Poland's 10-year yield could rise to 3.2 percent by the end of March next year from about 2.87 percent on Thursday.
Hungary's corresponding yield could rise to 3.25 percent from 2.91 percent. "It is all about the Fed," said Arkadiusz Urbanski, analyst of Pekao SA in Warsaw. "I also expect inflation to pick up at the year-end and this will likely awake the monetary policy tightening expectations in Poland," he added. The 33-34 basis point rise in the two yields is less than the increase projected in a separate Reuters poll for the 10-year US Treasuries yield, which is seen rising about 50 basis points to 2.4 percent.
The spreads of Polish yields over safe-haven Bunds which traded around 0.176 percent on Thursday could remain wide due to Poland's political and fiscal risks, Ceska Sporitelna analyst Katarzyna Rzentarzewska said. Policies of the new Polish government that has ruled since November, including promises for higher spending, an increase in the burdens on the bank sector and legislation to curb the power of the constitutional court, have fueled concerns. Standard and Poor's downgraded Poland's credit rating to 'BBB plus' from 'A minus' in January.
That hit asset prices although Polish bonds have rebounded since then, but much lower-rated Hungary's 10-year yield is seen remaining close to Polish levels. "In Hungary, the central bank's "self-financing" programme (which encourages local banks to buy government bonds) and its new rate cutting cycle are pushing the yield curve lower," said Gergely Urmossy, analyst of Erste Bank. "Fed rate hikes can further fuel a drop in foreign investors' Hungarian bond holding, but that is offset by hopes that Hungary's debt ratings will be upgraded," he added.