As an environment of global deflation persists,
money looking for yield continues to flow into
emerging-market bond funds. Funds that have never invested in
central and eastern European debt are now queuing up to do
so. One banker in Poland says even Australian investors now
hold Polish debt.
This is great news for the debt agencies in convergence
countries. As Edward Basinski, head of foreign debt at the Polish
ministry of finance, likes to say: "We have now effectively
converged." Spreads on Polish, Hungarian and other convergence debt
are very low. At 47 basis points over swaps for Poland, and 27bp
over swaps for Hungary, they are in line with spread levels for
debt issued by Italy or Greece immediately before they
converged.
Partly as a result of these very low spread levels, and partly
as a result of falling foreign direct investment levels, some CEE
economies are relying more and more...
