Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

[cobben]

Not that I know anything at all about Poland, but this does not sound good in general for eastern Europe, as Poland has been considered to be the strongest economy there.


Failed Polish Bond Auction Raises Serious Questions For Emerging Markets
http://www.zerohedge.com/article/fai...erging-markets

In its first bond auction since announcing its budget deficit was set to double in 2010 (talking a massive $20 billion here, nothing as puny as $9 trillion over the next 10 years), the Polish government sold only half of the PLN2 billion of the 5.75% bonds due 2011 it was hoping to offload to investors to plug the hole. It appears, unlike Tim Geithner, Polish Finance Minister Jacek Rostowski does not have Wen Jiabao on speed dial. Then again, after they have taken over America, who knows where Chinese interests will look next: that Bison grass vodka sure is a strategic asset.
Subsequent to the auction, BNP had some less than encouraging words for holders of Polish bonds:

“This is a direct consequence of a very dangerous fiscal outlook presented in the 2010 budget draft. We recommend selling Polish bonds across the curve.”

This merely reinforces Zero Hedge's view of the U.S. exemption from economic reality: after all, like any aggressive distressed bondholder, China is merely preparing for the inevitable debt-for-equity swap. If there are no other bidders (aside from the debtor itself of course), so much the better.
Unfortunately for Poland, it does not have a comparable exemption. The result:

The Polish zloty weakened 1.2 percent to 4.1635 per euro as of 11:22 a.m. in Warsaw, the most since Sept. 1. Polish bonds fell, pushing the yield on the five-year note four basis points higher to 5.79 percent and the yield on debt maturing in October 2019 up six basis points to 6.23 percent, according to PKO Bank Polski SA in Warsaw. Bond yields move inversely to prices.

Poland is definitely not out of the woods: the country is planning on selling another PLN2 billion on September 23. Perhaps it is time for the IMF to issue another rosy report about how everything is peachy throughout its protectorate.

[D-Mack]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

The exchange rate is not as bad as in Feb 09, but still with loans in swiss francs not a good thing
http://www.ecb.int/stats/exchange/eu...ph-pln.en.html

Currency-Exchange Gamble Is Costing Polish Consumers
Low-Interest Loans in Swiss Francs Turn Calamitous as Zloty Tumbles

By Craig Whitlock
Washington Post Foreign Service
Sunday, March 15, 2009; Page A12

WARSAW -- Like many of its formerly communist neighbors in Eastern Europe, Poland has turned into a country of capitalist gamblers.

In recent years, as their economy boomed, millions of Poles became foreign-currency speculators, buying property, cars and consumer goods with loans denominated in low-interest Swiss francs. As the Polish currency, the zloty, soared in value, most borrowers found it cheaper to pay off their debts in Swiss money, even though few had ever been to Switzerland or knew what a franc looked like.

Since August, however, the zloty has unexpectedly collapsed, losing nearly half its value against the Swiss franc. About two-thirds of all Polish mortgage holders now face skyrocketing payments. If the zloty continues to tumble, analysts fear the problem could lead to a wave of defaults in the region, dealing a major setback to Europe's already weakened banking system.

...

http://www.washingtonpost.com/wp-dyn...031400633.html

[chr5648]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

I'm familiar with Poland and the markets there. This is not really worrisome considering that the bond auction was denominated in PLN. If anything this would be finding data points that are IMHO irrelevant to the grand scheme of things.

I would be more worried if the bond auction was denominated in dollars or euros and was not fully subscribed.

I believe next week or the week after they will be issuing something in dollars or euros, I will watch out for that one.

The other thing about Polish markets is their low liquidity, it is crap, many times I hear traders talk about a poor liquidity day in the US, go and try to trade in Poland, then you'll get a taste of low liquidity every day.

The exchange rate is not as bad as in Feb 09, but still with loans in swiss francs not a good thing
http://www.ecb.int/stats/exchange/eu...ph-pln.en.html

Currency-Exchange Gamble Is Costing Polish Consumers
Low-Interest Loans in Swiss Francs Turn Calamitous as Zloty Tumbles

By Craig Whitlock
Washington Post Foreign Service
Sunday, March 15, 2009; Page A12


http://www.washingtonpost.com/wp-dyn...031400633.html

This article has been dated on March 15, 2009. Since then in Poland there has been many changes, from laws to markets. Now people can repay in CHF directly instead of PLN and then the bank exchanging to CHF. This has made a big difference and essentially is ensuring consumers better rates and saving a huge FOREX spread charge the banks were making. The CHF/PLN exchange rate has decreased, to allow easier repayment for consumers. Just as the date says the article is old and IMO irrelevant. Article was written at the top of the "financial panic" and now it seems to have cooled down.

I am familiar with Poland, but I am not familiar with any other eastern european countries. So be a sceptic.

[D-Mack]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

The crisis is over, everything is going to be fine?

Financing Polish Property: Should you take a Euro loan now?
11th September 2009 |

By Antony Tilney of Foreign Finance


Let me start by saying that I agree completely with the principal of keeping a loan in the same currency as the rent that comes in to support it (and the asset) - but in the current situation I would not personally take a PLN loan for 2 reasons.

1. It is just too expensive at interest rates around 9-11%

2. Historically the PLN / CHF exchange rate was fairly steady with the Polish Zloty gradually getting stronger as the economy was doing well. The global credit crunch has caused wild swings in exchange rates that would not normally happen. Particularly there has been a 'flight to safety' effect which caused stable currencies such as the Swiss Franc (CHF) to be regarded as 'safe havens' in these troubled times, so they became artificially strong.

This has caused huge problems for existing CHF mortgage holders as their equivalent PLN loan value had increased by up to 50%, in most cases removing the possibility of selling the property just when it might have suited some investors to do so to raise funds. But this is a temporary situation caused by the global crisis and as the crisis recedes the exchange rates will return to their previous levels (as they are already starting to do).

The PLN / EUR rate is operating under the same principal, just not quite as dramatically as the CHF effect.

...

http://www.foreignfinance.eu/news.html

[chr5648]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

The crisis is over, everything is going to be fine?

Financing Polish Property: Should you take a Euro loan now?
11th September 2009 |

By Antony Tilney of Foreign Finance


Let me start by saying that I agree completely with the principal of keeping a loan in the same currency as the rent that comes in to support it (and the asset) - but in the current situation I would not personally take a PLN loan for 2 reasons.

1. It is just too expensive at interest rates around 9-11%

2. Historically the PLN / CHF exchange rate was fairly steady with the Polish Zloty gradually getting stronger as the economy was doing well. The global credit crunch has caused wild swings in exchange rates that would not normally happen. Particularly there has been a 'flight to safety' effect which caused stable currencies such as the Swiss Franc (CHF) to be regarded as 'safe havens' in these troubled times, so they became artificially strong.

This has caused huge problems for existing CHF mortgage holders as their equivalent PLN loan value had increased by up to 50%, in most cases removing the possibility of selling the property just when it might have suited some investors to do so to raise funds. But this is a temporary situation caused by the global crisis and as the crisis recedes the exchange rates will return to their previous levels (as they are already starting to do).

The PLN / EUR rate is operating under the same principal, just not quite as dramatically as the CHF effect.

...

http://www.foreignfinance.eu/news.html

First I would question the source of that article, seems kind of fishy, I don't know any major news source that has a visitor counter on the bottom of the page, let alone showing a visitor total of 26 as of this post.

I believe this is just a mortgage originator/broker on his own business site preaching reasons to use his service, using crackpot predictions(euro adoption), predicting currency prices, and advocating currency speculation for amateur and consumers. This guy is no different than my neighbor who is a real estate agent and has for the past 10 years preached that house prices will rise to infinity AND BEYOND. Even when the market was collapsing the past 3-4 years.

The thing that leads to the complete collapse of credibility of this article, is advocating currency speculation for consumers.


Let me just add, unlike most governments, the Polish government did not bail out anybody, and they did not "try" fiscal stimulus. When they saw that tax receipts are going down, what did they do? They decreased spending!! They are not taking on new debt and spending that will have to be repaid in the future. Now I am not defending or opposing government actions but just pointing out the facts.

The next point is Poland is the only country in europe which has not had a negative quarter in GDP, in fact they are projected to grow at about 1%.

Here's an article that may have more info about the current economic conditions.

http://www.nytimes.com/2009/09/01/bu...rssnyt&emc=rss

[c1ue]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Poland is in better shape relatively than the other Eastern European countries; it remains to be seen how good that really is.

Poland external debt (as of end 2007): http://www.indexmundi.com/poland/debt_external.html

Year	Debt - external	Rank	Percent Change	Date of Information
2003	$64,000,000,000	15		2002
2004	$86,820,000,000	16	35.66 %	2003
2005	$99,150,000,000	17	14.20 %	2004 est.
2006	$101,500,000,000	29	2.37 %	2005 est.
2007	$147,300,000,000	28	45.12 %	30 June 2006 est.
2008	$169,800,000,000	27	15.27 %	31 December 2007

Poland GDP: $420B

It is amusing that the article which says Poland is so much less dependent on exports - all the new businesses are factories for exports.

Always be careful reading the New York Times...

[don]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

The story is generally between the lines.

PS: there's a Polish joke here but I'm not going to post it :rolleyes:

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Polish debt is about 46% to GDP they gov is speeding up the borowing and at the same time seeing the wall at 55%-60% as 60% is maximum level allowed according to constitution and at 55% they should implement very nasty saving mode. This country is under strong influance of great speculators like Soros (the real father of economic transformation there and "Jan Vincent-Rostowski"(economic minister) was educated in university founded by Soros as well). Polish zloty is great for speculators as whole country. Gov is not responsible and can shape economic outlook for a year to elections and sacrifice economic situation for longer term. The economic cycle is not synchronized with West Europe as well and there is about half year maybe more delay. Situation is better in Poland becasue this 46% is much less comparing to Latvia or Hungary. Anyway without borowing money from external sources this country will be in deep shit. Czech republic is as well in good shape (38%).

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

JP Morgan downgraded recomendation for Polish bonds yesterday.

[chr5648]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

JP Morgan downgraded recomendation for Polish bonds yesterday.

do you have a source?, I've been trying to find info, none out there

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

This website that I took info has some technical problems now but I have found other source for you.

http://www.nasdaq.com/aspx/stock-mar...ket-sovereigns

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Fully understable scepticism about polish zloty.



http://seekingalpha.com/article/1863...oty-be-careful

At the end of the year debt will break 55% (as planed in budget with big deficit) but gov was able using some creativity change it to 54,x :-) (I don't rebember x but it was like 6 or 8)

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Several days ago PM said that they expect about 15 billion zl less deficit. (planed 52).

Just one interesting thing about Poland and its GDP change + 1.7% in 2009. At the same time consumption of electricity go down 4% for 2009 period. VAT taxes go down as well.

[chr5648]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Several days ago PM said that they expect about 15 billion zl less deficit. (planed 52).

Just one interesting thing about Poland and its GDP change + 1.7% in 2009. At the same time consumption of electricity go down 4% for 2009 period. VAT taxes go down as well.

Interesting, do you have a source page? All politicians are the same, lie, lie, lie, then reassure.

[sandwind]

Re: Failed Polish Bond Auction Raises Serious Questions For Emerging Markets

Sorry for late answer. I just not look here everyday.
Texts are in polish but you can use google translator should be ok to understand

about use of electric energy in 2009

http://energetyka.wnp.pl/zuzycie-ene...824_1_0_0.html

about possible less deficit for 2010

http://forsal.pl/artykuly/397562,pol...adal_rzad.html

They expect 3.5% grow of GDP at the moment (export part more than 2% in it) and EU is expecting 2,8% (up from previous 1,8%) for Poland. Unemployment is growing at the same time. (record high for 3 years). Inflation is above target (2.5%) as I remember so there is in my opinion good possibility that Central Bank can put rates up in future.