(Bloomberg) -- Amundi SA has been buying Polish local-currency bonds as Europe’s biggest asset manager joins the ranks of investors who are reducing positions in Hungary.

The firm, which oversees $2.3 trillion in investments, is betting that Poland’s central bank will be slower to cut rates because of above-target inflation, while it expects three more interest-rate cuts in Hungary by the second quarter of 2025. That in turn is expected lead to further outperformance of the Polish zloty against the Hungarian forint. 

“Poland’s local-currency bonds have a better risk-adjusted performance than Hungarian notes in this low-growth environment in Europe,” Hakan Aksoy, senior portfolio manager at Amundi, said in an interview.  

While Polish Governor Adam Glapinski has started to contemplate rate cuts in the first half of next year, his counterparts in Budapest have been far ahead of the curve. 

The National Bank of Hungary has repeatedly vowed to maintain “disciplined and tight” monetary policy as the forint slid against the euro. Those pledges follow more than a year of easing with only a brief pause in August, still leaving Hungary with the highest key rate in the European Union, tied with Romania at 6.5% and against Poland’s 5.75%.

Constructive Views

Aksoy said he’s holding longer-term notes than the benchmark in Poland, but is staying “on the very front part” of the Hungarian bond curve with less duration risk on the premise that the central bank in Budapest will be more dovish.

Amundi joins several US and European banks in its preference for Polish assets over Hungary. 

BofA Securities strategists said last week that a recent trip to the region showed investors “constructive” on Poland and “bearish” on Hungary. There is room for overseas investors to increase their positions in Polish local bonds, with their share of debt holdings at historically low levels, BofA said. 

Barclays, Citigroup, Morgan Stanley and Erste Bank have all recently advised clients that they expect more forint weakening ahead. Besides the divergence in monetary policy, Hungary’s stuttering economy and political disputes with the EU are putting it in a different league from higher-rated Poland, though Hungary does have inflation within its target range. 

Poland’s local bonds have returned 3.2% this year, below the EM average of 4.4%, while Hungary debt lost around 3%, according to data compiled by Bloomberg. Meanwhile, the Polish zloty has been trading at a record high against the Hungarian forint.

Front End

Aksoy said he preferred not to be on the front part of the Polish bond curve as he expects Poland’s central bank to be “more patient” than other regional banks. 

Support for Polish bonds is also coming from local lenders, which have been collecting more deposits amid sluggish loan growth, and using the excess liquidity to buy local debt. That trend is likely to persist, Aksoy said.

“With the help of EU funds, we expect this gap to continue and increase the liquidity in the system,” he said. “In a low-growth environment, the banks will prefer to use this in the bond market and this will be supportive for the bonds.” 

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