Polish 5-year bond yields hit all-time low

PRAGUE/WARSAW: Poland's 5-year bond yields hit an all-time low on Tuesday ahead of a Polish central bank meeting that could give clues on how soon borrowing costs may be cut to stimulate a slowing economy.

Currencies across the central European region were little changed and traders said activity was subdued before a European Central Bank meeting on Thursday, when it is expected to unveil details of a long-awaited bond-buying scheme to tackle the euro zone debt crisis.

Polish debt has lured investors seeking a combination of relatively attractive returns and quite strong fundamentals in recent months. Talk of an interest rate cut has added fuel for a further rise in bond prices, market watchers say.

"Investors - both foreign and domestic ones - are buying our papers heavily and it looks like they are positioning for interest rate cuts," said one Warsaw-based fixed income dealer. "I still see room for further strengthening, particularly of 5-year papers."

Poland has outperformed the region thanks to a bigger domestic market but growth slowed more than expected in the second quarter to 2.4 percent year-on-year. The recent signs of economic slowdown have been pushing its central bank towards monetary easing.

The bank, meeting on Wednesday, is expected to keep the base rate unchanged for now at 4.75 percent, but may hint at future cuts at a news conference afterwards.

By 1351 GMT, the zloty was nearly flat to the euro, as was Romania's leu. Hungary's forint inched up 0.3 percent.

In the Czech Republic, the crown edged about 0.1 percent higher, just 0.7 percent off a four-month high hit at the end of August as a rally in central European assets has gradually cooled in the past month.

The Czech centre-right coalition government faces a challenging vote on tax rises to help lower next year's deficit.

Prime Minister Petr Necas faces a rebellion from a handful of lawmakers in his own party and wants to tie the vote to a confidence motion that would be another test of his thin majority.

Elsewhere, Romania on Tuesday sold 750 million euros ($943.7 million) in Eurobonds due June 2018 at a yield of 5.10 and 5.10 percent, Finance Minister Florin Georgescu was quoted as saying.