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Inflation Risks Levitate LT Bond Yields

POLAND
  • The 7D SMA of daily new Covid cases continue fell to 3,000, down from 4,300 the week before (and from 28,900 on April 1st). Poland PM Morawiecki said that the country will reopen cinemas and theatres on Friday, May 21, eight days earlier than originally planned.
  • In the past few weeks, we have seen that some NBP policymakers have started to express their concern over inflation risks in Poland, expecting CPI inflation to average over 4% in 2021 (much higher than the NBP and sell-side forecasts). Last week, NBP policymaker Jerzy Kropiwnicki mentioned that he sees inflation 'above 4% at year-end', with price growth driven by factors outside monetary policy realm. MPC Gatnar last week also mentioned that the NBP should hike by 10 to 15bps at the next meeting on June 9 to curb inflationary pressures (he expect CPI inflation to reach 5% in June).
  • Hence, growing concerns over rising inflationary pressures could increase disagreements over the trajectory of rates in the coming months, and has also been weighing on Polish bonds in the past few weeks.
  • On Friday, Final April CPI inflation came in at 4.3% (as Prelim) and GDP growth contracted less than expected in Q1, by -1.2% YoY (vs. -1.4% exp.).
  • Today, April Core CPI is coming out at 1pm (London time), expecting to rise by 3.7% (down from 3.9% the previous month).
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