By contrast, the spread on Italian bonds, having risen to a high of around 2.4 points during the summer, is now down to around 2.1 points. The yield premium over Bunds for 10-year government bonds is now around 5.5 percentage points for Poland, 7.8 for Hungary and 3.35 for Czechia, up respectively by 43%, 56% and 17% compared with the time of the Russian invasion on 24 February.
He proposed too that the European Central Bank should do more to devise appropriate ways of supporting countries in the long-term ‘waiting room’ to join the euro. He suggested that combatting this should be a major task for the relevant governments. In a presentation in Warsaw, David Marsh, OMFIF chairman, underlined the importance of the geopolitical premium. Furthermore, Poland and Hungary are both bedevilled by long-running EU disputes over funding and judicial/constitutional matters. They have no plans to join in coming years.
Rising spreads – especially marked for Polish and Hungarian government bonds – have reflected the immediate economic and political effects of the war in Ukraine as well as higher inflation in the CEE region compared with ‘core’ countries.Īlthough they are members of the European Union, Poland, Hungary and Czechia are all outside EMU – whose membership rises to 20 with the accession of Croatia from 1 January. At a time of generally rising international interest rates, yield spreads between top-rated German government bonds and those of other European countries within and outside economic and monetary union have been exceptionally volatile. The geopolitical yield premium for government borrowers from central and eastern Europe since Russia invaded Ukraine in February is a growing problem for debt managers.
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