Goldman Recommend Going Long FX-Hedged 10-Year POLGBs

Goldman Sachs recommend going long FX-hedged 10-year POLGBs, opened at 5.57%, with a target of 5.20% and a stop at 5.80%.

• They note that "the interest rate swap curve between 5s and 10s is relatively steep in Poland (...). This is despite the fact that broader disinflation developments are taking place alongside its regional peers. Furthermore, the asset swap spread is highly elevated in Poland. This likely reflects fiscal risks due to election-related spending, with a large fiscal deficit projected for next year."
• Regarding Poland's fiscal risks, Goldman argue that they are "contained and largely already priced in as: i) fiscal standings tend to outperform budget expectations. ii) fiscal widening is due to a number of one-offs that would reverse after the elections, iii) fiscal easing comes at a time of improving external balances, that should limit the extent of risks associated with fiscal easing."
• Poland's surprisingly expansionary draft spending plan for 2024 has been a subject of much debate over the past week, with the government targeting a fiscal deficit of 4.5% of GDP. Citi Handlowy argued that there is little room for a series of positive surprises in fiscal outcomes being extended into next year, after the Finance Ministry announced a change in its approach to forecasting budget deficit.