The Polish finance ministry slightly raised its offer of zloty-denominated bonds at an auction on May 5, despite a sharp rise in yields on the back of concern that the country could be hit by a second ratings downgrade of the year next week.

A total of PLN4.7bn in two-year and 10-year benchmark papers was sold, compared with an original plan to sell PLN4.5bn. That was despite a sharp rise in yields across asset classes as the markets fretted that Moody’s looks more likely to cut its rating on Poland later this month.

The ministry sold PLN1.76bn in 2Y OK1018 bonds at a yield of 1.645%. The pricing helped push demand for the papers to PLN3bn. The ministry attracted bids of PLN4.1bn as it sold PLN2.93bn in 10Y DS0726.

The yield on the longer issue rose 3bp to 3.134%. That is the highest since early this year, in the wake of a surprise downgrade by Standard & Poor’s in mid-January, according to Bloomberg.

Demand for Polish debt has been healthy in recent weeks as domestic risks – political uncertainty and plans to force conversion of Swiss franc loans – have conspired with global factors to raise yields. That has helped attract foreign investors back to the market, while domestic banks have been snapping up sovereign debt, which is not included in the base for Poland’s new bank tax.

However, additional risk hit the zloty and stock market hard on the same day as the auction. The currency weakened 0.5% against the euro and the equities market dropped sharply, as concern rose that Moody’s is likely to cut Poland’s credit rating.

The alarm came as the head of the country’s constitutional court revealed a letter from the finance minister asking him to refrain from comments that may stoke tension ahead of the Moody’s review. Warsaw’s battle with the Constitutional Tribunal has earned it harsh criticism around the globe, and helped stoke concern from rating agencies that the country’s institutions are losing independence as the government seeks to consolidate power.

Moody’s has twice this year warned the Polish government that its actions could be “credit negative”. In particular, it frets that fiscal policy is being loosened to pay for the pleges made by the ruling PiS party during its successful election campaign in October, and worries that growth could be hit should “measures targeting the country's institutional and legal framework erode business confidence and investment”.

Poland had raised around 62% of this year’s borrowing needs by the end of April. The ministry plans one more sale this month, on May 25, at which it has said it will offer up to PLN6bn of papers. Should that go through, it is estimated that around 68% of 2016 financing will have been raised by the end of the month.