Turkey strikes at record low yields with $1bn bond

By bne IntelliNews December 6, 2012

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Fresh from its upgrade from Fitch Ratings last month and taking advantage of the ongoing emerging market bond rally, Turkish yields hit a new record low on December 5 when Ankara sold $1bn bonds into strong demand.

The Treasury announced it had raised the debt via the reopening an issue of dollar-denominated 30-year paper, which matures in January 2041. With the order book reportedly over subscribed by three times, according to the issuer, the debt sold at a spread of 1.58 percentage points above US Treasuries at a yield of 4.352%.

That's one-third of the interest rates Turkey paid a decade ago, according to the Wall Street Journal, and compares with a June issue at twice the spread over US Treasuries. Turkey said investors from 27 countries bought pieces of the debt, according to Reuters, with 37% of the demand coming from the US and 31% coming from Turkey.

Driving the issue, the treasury added, was a goal of taking advantage of current favourable financing conditions to pre-finance the country's 2013 borrowing programme. That's a strategy that several CEE countries have been following during this year's emerging market bond rally, which is powered by liquidity action from the Federal Reserve and the European Central Bank. Issues have been coming thick and fast in the fourth quarter as some suggest the momentum may wane in early 2013.

For investors, flush with cheap cash, the hunt for yield has seen them looking outside the developed world. Turkey received its first investment grade rating since 1994 in November when Fitch gave it an upgrade on the back of the soft landing the government has orchestrated this year from domestic demand driven GDP growth of 8% in 2011.

However, Moody's disappointed hope that it may follow suit, citing continued exposure to Eurozone credit market shocks due to a current account deficit that, while falling, remains above 7%. Inflation has been following a similar pattern, which helped draw in investors already tempted by forecast growth of 3% in 2012.

Turkey has said that it plans to raise a total of $6.5bn from international markets in 2013 through issues of sukuk, Eurobonds and Samurai bonds. Market conditions and demand will determine the final breakdown of borrowing instruments, it added. With the December 5 issue, Turkish issues on international markets for this year rose to $7.1bn.

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