Turkey sets guidance on 9-year Eurobond amid market rally

By bne IntelliNews April 9, 2014

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Turkey on April 8 set official guidance of 4.25% area on its upcoming issue of a nine-year euro-denominated bond, according to reports. The yield was down on initial price thoughts of around 4.375%, reflecting the rally that Turkish assets have been enjoying over the past few days.

On April 8, the dollar fell below the 2.10 threshold against the Turkish Lira for the first time since December 26, when a massive corruption scandal followed by the US Federal Reserve tapering its quantitative easing programme caused investors to flee this emerging market.

Since hitting a record low of TRY2.39 against the dollar in January, the lira has climbed more than 10% as fears over Turkey's macroeconomic vulnerabilities recede and the embattled Prime Minister Recep Tayyip Erdogan's ruling Justice and Development Party (AKP) won a landslide victory in the March 30 local elections.

Foreign money has begun flowing toward emerging markets again; MSCI's emerging-market stock index has advanced 4.6% over the past month. Turkey was a particular beneficiary of this, with the Borsa Istanbul 100 rallying 17% over the past month, the most among the 93 global major benchmarks. Foreign investors made net purchases worth almost of $680m in Borsa Istanbul throughout March.

The new bond issue from Turkey is expected to cover its remaining external financing needs for the year. The country has issued $4.6bn year to date, which compares with the $6.5bn annual external Eurobond financing target. "Through this new deal they will come close to covering their financing for the year - the administration will take this as a vote of confidence in them," says Tim Ash of Standard Bank.

Ash is one of the growing number of investors who are turning more optimistic about Turkey's prospects. "We are pretty constructive Turkey local and TRY, as we think that rebalancing will pan out over the next few months, bringing portfolio flows back to the Turkey story, attracted by double digit nominal rates, positive real rates, and a still depreciated lira," he says.

Turkey is rated 'Baa3' by Moody's Investors Service, 'BB+' by Standard & Poor's and 'BBB-' by Fitch.

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