Polish bonds, known as POLGBs, are outperforming US Treasuries as expectations of faster and deeper monetary easing in the US boost bets that Poland’s hawkish policymakers might lean towards rate cuts. Over the past month, POLGBs have become Europe’s top performers, with the extra yield on 10-year zloty-denominated bonds over similar-dated Treasuries hitting its lowest since May.
The National Bank of Poland has maintained steady interest rates in 2024, unlike other central banks in Eastern Europe. However, if the US Federal Reserve cuts rates sharply, Poland might follow suit. The yield on Poland’s 10-year bonds dropped by 56 basis points since July 26, reaching a 2024 low of 5.06%.
Foreign holdings of POLGBs surged by 5 billion zloty in June, the largest monthly increase since mid-2022. Forward-rate agreements reflect growing bets on significant rate cuts in Poland, contributing to the bond rally. Elsewhere in Eastern Europe, countries like Hungary and the Czech Republic have already slashed their rates significantly.