Poland: Pandemic in focus

National Bank of Poland to buy bonds

The NBP is scheduled to hold the first of two planned QE operations for July. So far, the NBP has bought PLN 96.2bn in Treasuries (PLN 50.8bn) and state-guaranteed papers issued by PFR and BGK (PLN 45.4bn). The volume of bonds bought within each operations peaked in mid-April at PLN 30.6bn and has been dropping since then, with just PLN 2.4bn bought at the second auction in June. In our view, the NBP will continue buying bonds throughout 2020, while monetary policy will remain flat at least until the end of 2021.

Last week's highlights

• CPI jumped to 3.3% y/y in June, likely on back of services prices. We see risks to upside to our current inflation forecast of 3.1% in 2020.

• PMI increased to 47.2 in June up from 40.6 in previous month.

• BGK sold bonds worth in total PLN 11.85bn in 5Y and 10Y papers. Total issuance stands at PLN 54.5bn. • NBP to hold QE operation on July 8 and July 22.

• MinFin plans to sell bonds worth PLN 5-12bn in 1-2 regular auctions in 3Q20.

Market developments

Bond market drivers | 10Y yield remains below 1.4%

Over the course of the week, the long end of the Polish curve moved in a narrow range between 1.35-1.4%. The markets did not react to a sharp increase of inflation in June, as the 10Y yield hardly moved after the release. The second half of the week brought yield decreases, as the long end of the curve went below 1.35% and remained locked there at the start of the new week. As far as core markets are concerned, the 10Y German Bund went up by around 5bp to around -0.44%. As a result, the spread against the 10Y Bund narrowed and returned to 180bp. With no macro releases scheduled for this week, the bond market will focus on the auction held by the MinFin and the QE operation of the NBP. Moreover, global sentiment will drive the market this week, with the pandemic being in focus.

FX market drivers | EURPLN fluctuates around 4.46

The publication of the PMI for June, which came in at 47.2 (above market expectations), pushed the EURPLN below 4.45. However, the reaction was short lived and the pair bounced back to the 4.46 area, where the zloty has remained locked since mid-June. All in all, we continue to think that global risk on/off mood is the key driver for the zloty. We expect it to remain broadly unchanged at around 4.45 until the end of 3Q20.

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