4/30/2015

Poland joins negative yield club - FT.com

Lastupdated:April29,20151:41pm

Poland joins negative yield club

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Poland has become the first emerging market to sell debt at a negative yield, underscoring
the relentless decline of borrowing costs in global markets.
The Swiss franc-denominated SFr580m three-year bond will pay no coupon and yielded
minus 0.213 per cent, swelling the growing pool of negative yielding government debt in
Europe.
Since the European Central Bank unveiled its landmark
sovereign bond-buying programme this year to stoke inflation and stimulate growth in
flagging eurozone economies, prices in bond markets have soared, sending yields to record
lows.
Several highly rated European sovereigns have already sold bonds with negative yields but
emerging market governments have up to this point been unable to tempt investors in
similar fashion.
Poland is rated six notches below Germanys triple A Standard & Poors rating but the
aggressive loosening of monetary policy in Europe has fuelled unprecedented demand for
fixed income, driving yields down in riskier assets.
The ECBs decision to cut rates and launch quantitative easing also led to a steep drop in the
euro against rival currencies, pushing central banks across Europe to cut interest rates in
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4/30/2015

Poland joins negative yield club - FT.com

response.
Poland had previously tapped the Swiss franc bond market to expand its investor base.
Since the Swiss central bank slashed its deposit rate to minus 0.75 per cent earlier this year
the lowest in the world it has become an even more attractive market for prospective
borrowers.
Its the biggest issue ever printed with a negative yield in the Swiss franc market, which is a
great success for Poland, said Fabian Welandagoda, director of local currency syndicate at
HSBC.
Warsaws bond was snapped up by international bondholders including Swiss investors, for
whom a yield of minus 0.213 per cent is a significant premium on the minus 0.75 central
bank deposit rate.
Fixed income investors have quickly acclimatised to the new reality of negative yielding
government bonds in Europe.
Negative yields are a taboo that has long been broken, said Michael Riddell, fund manager
at M&G Investments.
With European deposit rates at minus 0.2 per cent and the lowest yielding German bond at
minus 0.28 per cent, the market is just looking for a pick-up over that.
Earlier this month, Switzerland became the first country to sell benchmark 10-year debt at a
negative yield, and sub-zero yielding bonds now account for about a quarter of Europes
entire government debt market.
In March, Poland cut its main interest rate 50 basis points to 1.5 per cent, the lowest level on
record. However, it has closed the door to further easing, citing robust economic growth.
In a further sign of the relentless investor appetite for fixed income in Europe, Cyprus sold
1bn of seven-year debt on Tuesday with a coupon of 3.875 per cent, attracting offers close
to 2bn from investors struggling to find positive yields elsewhere in Europe.

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Poland joins negative yield club - FT.com

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