Polish Bonds, Zloty Fall After ‘Low’ Demand at 5-Year Bond Sale

By Piotr Skolimowski

Sept. 9 (Bloomberg) -- Polish bonds weakened and the zloty fell after the Finance Ministry sold near the lowest amount of five-year notes on offer today in the first auction since the government said the budget deficit will almost double next year.

The decline in bonds pushed the yield on the notes three basis points higher to 5.75 percent after the results were announced, according to PKO Bank Polski SA. Yields move inversely to prices. The zloty extended its losses, weakening 0.8 percent to 4.1200 per euro as of 1:40 p.m. in Warsaw.

Poland sold 1.11 billion zloty ($390 million) of 5.75 percent Treasury bonds maturing in April 2014, the Finance Ministry said today. The ministry offered between 1 billion and 2 billion zloty of debt.

Poland is struggling to curb its budget deficit even as it leads the European Union in growth, expanding 1.1 percent in the second quarter. The government yesterday approved a draft 2010 budget capping the central government deficit at 52.2 billion zloty, almost twice this year’s level.

“These are not good results,” said Warsaw-based Maciej Slomka, head of fixed-income trading at Bank Pekao SA, Poland’s biggest bank by market value. “The demand was low and it seems like the news about the budget was what scared people off.”

Investors offered to buy 2.16 billion zloty of five-year bonds. The minimum price was set at 999.60 zloty and the average yield was 5.736 percent. In the previous sale of the notes on Aug. 12, the ministry sold 3.5 billion zloty of debt at a yield of 5.55 percent and demand was 4.97 billion zloty.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net