The Turkish Treasury has raised €1.5bn from a euro-denominated eurobond due February 2026 with a coupon rate of 5.20% and a yield to the investor of 5.25%, it said on November 8 in a written statement.

Initial expectations for the yield stood at around 5.5%, according to unnamed banking sources, Reuters reported on October 16 citing the International Finance Review (IFR).

The spread over market rates continued to increase, reaching 456.4bp over Mid-Swaps (MS). Some 35% of the bonds have been sold to investors in the UK, 20% in the US, 14% in Germany and Austria, 7% in the Nordic countries, and 5% in France and Switzerland.

“In the end, pretty successful issue—good timing after the Kazakh issue. The sovereign has now secured $7.7bn in financing from international capital markets this year, as opposed to its $6.5bn annual target—albeit the latter was always ‘soft’ and given it raised more than this last year. The target for external financing next year has been raised to $8bn,” Timothy Ash of Bluebay Asset Management said in a note to investors.

Turkey raised $9.1bn from international markets in 2017 versus the planned $6bn.

“This was the first EUR-denominated placement from Turkey after mid-2017. Pricing appears spot on the curve with closest to the 2026 issue due 2025 yielding 4.865%. Demand for the issue has been strong with order books closing above €4.5bn since Turkey is another CEE market to offer comparatively high yield for a BB- rated country. Turkey is rated BB/negative by Fitch and Ba3/negative by Moody’s. S&P unsolicited rating for Turkey is B+/stable. Our Buy recommendation for Turkey rests on the assumption that outlook on Turkey will go back to stable next year while current spreads still contain a Premium to the rating,” Gintaras Shlizhyus of RBI Vienna said in a research note.

Economy likely in recession
Turkey’s economy has likely entered recession and it will contract every quarter through mid-2019 as the lira’s slump and rising borrowing costs take their toll on the economy, Moody’s Investor Services said on November 6 in its latest report entitled “Outlook:  Sovereigns – Global: 2019 outlook still stable, but slowing growth signals increasingly diverging prospects”.

As monetary tightening in major economies and geopolitical trade disputes continue to undermine investment globally, Moody’s is taking an increasingly dim view of the growth prospects of emerging markets like Turkey and Argentina, which “have relatively high exposures to external financing and therefore are the most vulnerable,” Bloomberg cited the latest Moody’s report as saying.

Speaking in the northwestern Turkish city of Bursa, Turkey’s Treasury and Finance Minister Berat Albayrak said the successful issuance, which attracted around €4.7bn in demand, was a concrete display of the rising confidence of investors in Turkey’s economic policies, according to the news agency.

In June 2017, at the previous EUR-denominated eurobond auction, Turkey borrowed €1bn through a EUR-denominated bond due June 2025. The bond had a coupon rate of 3.25% and a yield to investor of 3.337% while the spread over MS stood at 285bp.

Also this week, Kazakhstan sold a dual tranche transaction consisting of €525mn of a 1.55% eurobond due in November 2023 and €525mn of a 2.375% bond due November 2028. The combined order books exceeded €3.3bn compared to the €1.05bn allocation.

Kazakhstan’s foreign currency debt ratings are BBB with a stable outlook from Fitch, BBB- (stable) from S&P and Baa3 (stable) from Moody’s.

Last month, the Turkish treasury raised $2bn from a USD-denominated eurobond due December 2023 with a coupon rate of 7.25% and a yield to the investor of 7.50%, better than initial expectations for 7.75%.

The spread over US bonds reached 447.5bp at the auction, marking a jump from 336.8bp in the April auction and 266.7bp in the January auction.

In April, the Treasury issued $2bn worth of 10-year eurobonds at an annual cost of 6.20% against three-times-higher demand. In January, the Treasury raised $2bn via 10-year bonds but at the lower cost of 5.20%.

Turkish Treasury's Eurobond Issues in 2018
Issue Date	Currency	Size	Maturity	CouponRate (%)	Price (%)	Yield to Investor (%)	Yield to Investor (Spread)
17.01.2018	USD	2bn	17.02.2028	5.125	99.411	5.20	UST + 266.7 bp
24.04.2018	USD	2bn	24.10.2028	6.125	99.427	6.20	UST + 336.8 bp
23.10.2018	USD	2bn	23.12.2023	7.25	98.917	7.50	UST + 447.5 bp
14.11.2018	EUR	1.5bn	16.02.2026	5.2	99.73	5.25	MS + 456.4 bp
Turkish Treasury's Eurobond Issues in 2017
23.01.2017	USD	2bn	25.03.2027	6	99	6.15	UST + 375.7 bp
23.02.2017	USD	1.25bn	25.03.2027	6	103	5.65	UST + 320.5 bp
11.05.2017	USD	1.75bn	11.05.2047	5.75	98	5.875	UST + 286.7 bp
14.06.2017	EUR	1bn	14.06.2025	3.25	99	3.377	MS + 285 bp
13.09.2017	USD	1.75bn	11.05.2047	5.75	101	5.70	UST + 300.5 bp
Turkish Treasury's Lease Certificate Issues in International Markets in 2017
06.04.2017	USD	1.25bn	06.04.2023	5	100	5	MS + 285 bp
source: treasury