POLAND - Polish bonds fell for a fifth day, pushing yields on 10-year debt to a one and a half year high, on government plans to cut the portion of workers' contributions to private pensions and on bets the central bank will raise interest rates next week.
The yield on zloty bonds maturing in October 2020 increased 3 basis points to 6.38% as of 12:58pm. in Warsaw, extending this week's climb to 19 basis points and reaching the highest since June 26, 2009, according to generic prices on Bloomberg. The zloty weakened 0.2% to 3.8837 per euro, its second day of declines.
The government this week sold 10-year zloty bonds at the highest yields in almost 20 months as the pension-change proposals lead to concern private funds will be left with less to invest. The funds were the third-biggest holders of government debt as of November, according to Finance Ministry data.
"Local investors continue to follow the pension fund story," said Luis Costa, an emerging-market strategist at Citigroup in London. "We don't know how they will have to reshuffle their portfolios to reflect the planned changes so this is not a comfortable environment to extend duration."
A report yesterday showed inflation rate rose to 3.1 percent in December, an 11-month high driven by food prices, intensifying speculation the central bank will raise borrowing costs for the first time since June 2008 next week.
The central bank will increase the main rate by a quarter of a percentage point to 3.75% on January 19, according to 16 out of 24 economists surveyed by Bloomberg.
The government wants to reduce cash transfers to private pension funds to 2.3% of a worker's pay from 7.3% to help narrow the budget deficit and trim public debt. Fourteen pension funds managed more than 221.3bn zloty of assets in December, with about 52% invested in government debt, according to the country's financial regulator.
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Work and Pensions Committee (WPC) chairman Frank Field has questioned the regulator on what lessons it can learn from the experience of the Kodak Pension Plan No.2 (KPP2).