CEEMEA Exclusive: Poland DMO Head: Yen Bonds Likely, See Lack of Demand for Linkers

17 January 2023

CEEMEA Exclusive: Polish DMO Head: Yen Bonds Likely, See Lack of Demand for Linkers
- Poland DMO head: International markets ‘not critical source of funding’ for Poland
- Poland DMO head: See ‘clear need’ to be present in Japan
- Poland DMO head: Resolution of EU funds dispute would be desirable for debt management
- Poland DMO head: Negative CJEU outcome could be ‘black swan’ for Polish bonds 

By Xavier D’Arcy – VIENNA (Econostream) – Issuing bonds in yen is a distinct possibility for Poland this year and the country’s DMO sees the necessity of being present in other international markets as well, according to Karol Czarnecki, Director of the Public Debt Department at the Polish Ministry of Finance.

In an interview Wednesday on the margins of the Euromoney Central and Eastern European Forum, Czarnecki also poured cold water on the idea of issuing inflation-linked bonds this year.

The probability is ‘higher rather than lower’ that Poland will issue in yen, he said. Rebuilding personal contacts with Japanese investors is of key importance to the DMO, he told Econostream, adding that he sees a ‘clear need’ to be present in the country.

The impact of the Bank of Japan’s unwinding of its ultra-loose monetary policy on Japanese investor demand for Polish bonds remains to be seen.

Although international markets will ‘not be a critical source of funding’ for Poland in 2023, Czarnecki saw a need to remain ‘present in other markets and in other financial centres’ throughout the year.

Demand for inflation-linked bonds is ‘a little bit lower than before’, he said, with inflation rates falling across the region. The level of market demand for inflation-linked bonds is not sufficient for Poland to consider issuing such bonds at the moment, he added.

Regarding a possible negative outcome for Polish banks in the pending FX loans case before the Court of Justice of the EU, such an event was a potential ‘black swan’, he said. If institutional demand for Polish government bonds were to suffer as a result, he expressed confidence that Poland could plug any gap via retail markets.

The Polish government’s fiscal spending plans present ‘a lower risk than before’ to sovereign debt issuance, he said. This was partially due to inflation falling, but also due to a change in the government’s approach, which he considered had become ‘smarter’. He also dismissed any potential further impact on Polish sovereign debt of the broader geopolitical situation and Russian aggression in Ukraine, which ‘market participants have adapted to’.

A resolution of the ongoing dispute between Poland and the European Commission on EU recovery funds would, Czarnecki said, be desirable from a debt management perspective. He predicted that the funds would be unblocked in 2023, and that this would ‘positively influence the performance of Polish debt’.

The Polish parliament has started work this week on crucial legislation regarding the Supreme Court, necessary to unblock Poland’s EU recovery funds. To approve it, the governing Law and Justice party will have to rely on opposition votes, and the outcome remains unclear.