This summer, interest rates on various retail treasury bonds will take a significant hit, potentially affecting bonds worth a total of around 45 billion PLN. The culprit is the sharply falling inflation rate. For holders of 4- and 10-year bonds, this means a dramatic drop in interest rates, often well below what is currently offered to new investors. The stakes involve approximately 1.2 billion PLN in interest that could slip away, according to Bartosz Turek, Chief Analyst at HREIT.
Turek warns that retail treasury bondholders with interest rate updates scheduled for the summer should brace for an unpleasant surprise. This is especially true for 4- and 10-year bonds. In June, these bonds often yielded around 14% annually, but starting in July, their interest rates will plummet to just 3-4%, based on HREIT’s calculations. This decline is attributed to inflation, which has slowed down to near the inflation target.
These inflation figures, delayed by two months, are used to update the interest rates of most variable-rate retail bonds. According to Turek, the summer months will not be an exception. This year, unpleasant surprises have affected retail treasury bondholders since at least March. However, bonds with interest rate updates during the summer warrant particular consideration for exchanging them for new ones. In extreme cases, this could yield an additional 6-7% over several years.
Turek emphasizes that recent retail treasury bond purchasers should stay vigilant. It is crucial to closely monitor the interest rates proposed by the government after the update. This matter concerns holders of retail bonds with a maturity of at least four years.
The expert notes that the expected drastic interest rate cut will lead many bondholders to reconsider their options. Today, there are solutions that offer returns higher than 3-4% annually. Adding to the complexity, even the Minister of Finance is enticing investors with higher interest rates on new bond issues. However, there’s a catch – investors must purchase new bonds. Currently, 3-year bonds offer a fixed interest rate of 6.2%, 4-year bonds provide 6.55% in the first year and then 1.5 percentage points above inflation, and 10-year bonds promise 6.8% in the first year, followed by 2 percentage points above inflation.
“It is not surprising that some bondholders will opt for early redemption to purchase new issues. We estimate that exchanging old bonds for new ones could be beneficial for those who invested around 45 billion PLN in total from 2015 to 2023. Timely bond exchanges could allow Poles to earn an additional 1.2 billion PLN in interest,” says Turek.