Treasury bonds are knocking out the market. “Corporate companies have less and less to offer”

3.2 percent inflation in April means that the June series of CPI-indexed savings bonds will enter new interest periods with an interest rate of 4.7%. and 5.2 percent (four- and ten-year-olds, respectively). Against this background, corporate bonds have less and less to offer – writes Emil Szweda from the Obligacje.pl portal.

In Emil Szweda's opinion, an increase in inflation that is still within the Monetary Policy Council's target and does not force the Council to decide to raise interest rates is a potential threat to the corporate bond market, not only those addressed to retail investors.

“We have already observed a similar scenario in 2019-21, when inflation rose without any obstacles (from the MPC website). Sales of savings bonds indexed to CPI were growing rapidly at that time, while the corporate bond market was going through the most difficult times,” wrote the analyst in a weekly commentary on the Obligacje.pl portal.

Advertisement

In his opinion, the prolonged blockade of the Strait of Hormuz (it has been going on for two months now, which goes well beyond the predictions from the first days of the US and Israel's war with Iran) introduces an element of uncertainty similar to the one during the pandemic.

If the preliminary reading of April's inflation is confirmed, the interest rate on CPI-indexed savings bonds will increase to around 5%. in June. Of course, we are talking about securities placed a year ago or earlier, but those currently on sale start at 4.75-5.35 percent. in the first year – wrote Emil Szweda.

Nominally, this corresponds to an interest rate equal to the WIBOR rate increased by 1-1.5%. margin, and this is very close to the rates currently offered on the primary market.

Develia announced this week an issue of PLN 150 million with an interest rate of 1.95 percentage points. above WIBOR, and Dom Development introduced securities on Catalyst with a margin of 1.2 percentage points.

As the analyst writes, although these issues were not addressed to individual investors, they were covered by investment funds that manage investors' funds, including retail ones.

“They will soon be faced with a choice – whether to keep units of funds that charge management fees or to invest on their own in bonds with lower credit risk, which cost nothing to maintain and which – this is also important – are not quoted, so valuations are not subject to daily fluctuations,” he wrote.

Investors who choose corporate bonds for their portfolios are already facing this dilemma. The primary market does not spoil them with offers (in April, only Cavatina carried out an issue for PLN 100 million compared to the originally planned PLN 50 million, reducing the margin to 5.2 percentage points over WIBOR from the standard 6.0 percentage points for this issuer), and prices on the secondary market spoil issuers.

Kruk, whose results disappointed stock market investors (judging by the decline in quotations by up to 7 percent during Thursday's session), can boast of bond quotations with actual margins of just over 2 percentage points. over WIBOR, which gives approximately 6%. gross profitability. That's less than 1 percentage point. above what Treasury savings bonds have to offer today.

“If the situation continues, the results of corporate bond funds will decline in the medium term. Meanwhile, on the treasury bond market, the situation does not persist, but worsens, which affects the rates of return of investment funds, including those that only hold liquidity cushions in treasury securities,” wrote Emil Szweda.

On Friday, the yield on 30-year US bonds exceeded 5% from below. and was at its highest level in nine months. However, there was no wave of selling, which strengthened debt quotations also on the Old Continent, including Polish ten-year bonds.

“But they still end the month with 5.77%, 40 points above the April low. It cannot be said that the worst is over. There is a chance to calm down on the wholesale treasury debt market, but there is still some way to avert the danger of a sell-off,” says an analyst at Obligacje.pl.

(PAP Business)

pr/ana/