BUDAPEST/WARSAW: Polish government bonds firmed on Monday after Fitch affirmed the country's 'A-' credit rating on Friday, with stable outlook, and Moody's did not update its own rating.
Some investors had feared a downgrade.
Governments in Central Europe lift spending and cut taxes to help their economies, after central banks have reached their limits in economic stimulus, cutting rates to record lows.
Rate hikes are not on the agenda yet even though inflation is picking up, US interest rates are expected to rise further and the ECB tapers its own stimulus.
Any change in Polish rates would at this time shake its macroeconomic stability, Polish central banker Lukasz Hardt told the daily Dziennik Gazeta.
Polish bond yields fell 2-3 basis points by 1404 GMT GMT, with 10-year papers trading at 3.61 percent.
Demand for bonds was helped by a recommendation from the Financial Stability Committee (KSF) that banks should have to put more capital aside if they hold foreign exchange-denominated mortgages.
The new rules could limit lending and encourage bond buying, mBank economists said in a note.
The same news knocked down Polish bank sector stocks.
MBank led the decline, falling by 2.7 percent, while Warsaw's bluechip equities index rose 0.6 percent.
"If we assume all negative factors mentioned by the KSF, then a part of banks will have a shortage of capital," said Kamil Stolarski, equity analyst at Haitong Bank.
This mainly concerns banks with the biggest exposure to FX loans: Getin Noble Bank, Bank Millennium and mBank, he said, adding that BZ WBK and PKO BP could also be close to the minimum capital requirement.
Romania sold more six-year bonds than planned at an auction even though the average yield ticked up to 3.14 percent from Friday's 3.12 percent closing bid.
The Czech yield curve steepened, with the 2-year yield dropping 8 basis points to -1.197 percent. The 10-year yield rose 14 basis points to 0.468 percent.
Czech assets have drawn strong demand in the past weeks due to expectations that in the middle of the year the central bank will abandon its cap which keeps the crown weaker than 27 against the euro.
The bank's Govenor Jiri Rusnok said on Monday that it was looking at the inflation trend rather than any specific inflation rate when considering when to lift the cap.
Elsewhere, the Serbian dinar hit a 3-month low at 124 versus the euro, even though the Belgrade central bank continued to buy it in the market.
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