Prices for bonds on the international marked have dropped sharply amid mounting concerns over interest rate policies, particularly in the U.S. Analysts attribute the decline to fears that inflation could rise as a result of Donald Trump’s proposed policies, including higher tariffs and reductions in migrant labor. These measures may force the Federal Reserve to pause or abandon planned interest rate cuts. Strong economic data from the U.S. further supports the likelihood of sustained higher interest rates.
The expectation of higher interest rates has led to rising bond yields globally. In Central and Eastern Europe, this trend is evident as Poland’s 10-year government bond yield surpassed 6% – its highest level since October 2023. The Czech Republic’s bond yield exceeded 4.2%, the highest since June 2023, while Romania’s yield rose to 7.7%, marking a level not seen since March 2023. Hungary’s yield, nearing 7%, reached its highest point since November 2023.
Higher borrowing costs for governments
Increased bond yields create challenges for finance ministries, as new bond issuances must offer higher interest rates to attract buyers, raising the long-term cost of servicing public debt. To mitigate these costs, some governments issue euro-denominated bonds to capitalize on the eurozone’s lower interest rates.
Hungary recently issued €1.5 billion in 10-year bonds with a yield of 4.5%, while Poland raised €1.5 billion through five-year bonds at a 3.02% yield and another €1.5 billion in 10-year bonds at 3.63%. These euro-denominated bonds offer more favorable terms than domestic bonds.
However, this strategy carries exchange rate risks. While borrowing in euros can reduce interest expenses, any significant depreciation of local currencies, such as the złoty or forint, could increase the cost of repayment and erode the savings achieved through lower interest rates.
Housing market slows as mortgage demand declines
In addition to government borrowing, household debt in Poland – especially mortgage lending – has also been affected. According to the Credit Information Bureau (BIK), mortgage applications slowed in December, with just over 26,000 applications submitted – a 3% decrease from November and a 44% drop year-on-year.
This sharp decline follows a surge in demand in 2023 due to the expiry of a government subsidy program covering a portion of mortgage interest payments. Now, the market has stabilized, with property prices levelling off in many cities.
The average mortgage application amount in December was PLN 444,900 (€96,200), only 2.2% higher than the previous year. Total demand for home loans in December was €2.5 billion, the lowest since August 2023, indicating that the housing market is far from recovering.
Central Transport Hub moves forward
Poland’s Central Transport Hub (CPK) project has reached a key milestone with the issuance of a location decision – a crucial document that enables construction to begin. Mazowieckie Province Governor Mariusz Frankowski approved the decision, which covers the airport, rail, and road infrastructure.
The CPK project spans 2,585 hectares and includes a terminal, runways, rail connections in three directions, and supporting road infrastructure. With the location decision secured, the CPK company can now apply for construction permits. So far, 1,188 hectares of land have been purchased, with agreements signed for an additional 214 hectares, covering 54% of the required area. The remaining land will be acquired through compulsory purchase, with compensation provided to landowners.
The airport, located between Warsaw and Łódź, is designed to handle 34 million passengers annually upon opening in 2032, with provisions for future expansion. The project is expected to cost nearly €28.4 billion, with €16.6 billion allocated to the rail system and €9.3 billion for airport infrastructure.
Progress on Poland’s first nuclear power plant
Poland’s plans for its first nuclear power plant in Choczewo, near the Baltic coast, have advanced with the government approving over €12.9 billion in state funding until 2030. This funding will cover 30% of the project’s estimated total cost of over €40.8 billion, with the remaining 70% to come from external financing.
The initial state contribution is crucial for unlocking foreign funding, which will largely come from U.S. financial institutions. The American companies Westinghouse and Bechtel are leading the project, though private investors may also participate through bond purchases.
According to the Polish Nuclear Power Plants (PEJ) CEO, the first reactor is expected to be operational by 2035 and integrated into the national power grid by 2036. The legislation still requires parliamentary approval and the president’s signature to take effect.
Orlen’s €82 billion investment strategy
State-controlled energy giant Orlen has unveiled an ambitious investment plan worth between €75 billion to €82 billion over the next decade. Around 40% of this budget will fund energy sector projects, including offshore wind farms, energy storage, and small modular reactors. The company also plans to expand natural gas extraction and build combined-cycle gas power plants, aiming to phase out coal in energy operations by 2030 and in heating systems by 2035.
Orlen has allocated up to €18.3 billion for acquisitions and mergers. Despite the significant scale of its investments, the company insists that it will not increase its debt, forecasting an EBITDA of over €108 billion over the next 10 years.
For 2025, Orlen has announced a dividend of €0.97 per share, with annual increases of €0.03 planned. Despite this, the market reaction has been subdued, with Orlen’s stock rising by only 0.5% following the announcement.
Orlen’s operations include refineries in Poland, the Czech Republic, and Lithuania, a retail fuel network across Central Europe, and oil and gas exploration in Poland and Norway. In recent years, Orlen has strengthened its market position by acquiring Energa, Grupa Lotos, and PGNiG.
Poland’s Fiscal Council: A milestone for transparency
In response to years of EU pressure, Poland has established an independent Fiscal Council after President Andrzej Duda signed the legislation last Friday. The Council will assess economic forecasts used in state budgets and ensure compliance with EU and national fiscal rules.
The seven-member Council will be led by a chairperson and a deputy, and will include representatives nominated by key institutions, including the president, the Supreme Audit Office (NIK), the finance minister, trade unions, employer organizations, and local government representatives. Final appointments will be made by the Sejm, the lower house of parliament, with Senate approval following public hearings.
The creation of the Fiscal Council aims to enhance fiscal discipline and public accountability, aligning Poland with EU standards. However, the Council’s success will depend on its independence and the extent to which policymakers respect its recommendations.
