Turkey Bond Yields Extend Stay at Record Lows on Barclays Report

Turkey’s bond yields extended their decline to the lowest level since at least 2005 after Barclays Bank Plc said Moody’s Investors Service could follow Fitch Ratings with an upgrade, spurring demand for the nation’s debt.

Yields on two-year benchmark bonds fell 11 basis points, or 0.11 percentage point, to 6.74 percent, retreating for the fourth day at the close in Istanbul. The lira strengthened 0.2 percent to 1.7833 per dollar, after gaining 0.5 percent on Nov. 6 to the highest level since May 7.

Moody’s could upgrade Turkey to investment grade in the next five to six months, analysts including Koon Chow and Christian Keller at Barclays wrote in a note today. Fitch boosted Turkey’s foreign-currency ranking one step higher to BBB- with a stable outlook on Nov. 5, sending two-year yields to a record low and driving the lira to its strongest level since May. The upgrade would make Turkey an eligible issuer for flagship investment-grade bond indexes, Barclays analysts said.

“The inclusion into Barclays’ flagship indices such as the Global and Euro Aggregate could attract about $2-$2.5 billion in new demand for the nation’s Eurobonds,” Barclays analysts said in the report.

Yields on Turkey’s January 2030 dollar bonds fell to a record low at 4.1 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Turkey’s dollar-denominated sovereign bonds rather than U.S. Treasuries plunged 16 basis points to 192, the biggest decline worldwide, JPMorgan Chase & Co.’s EMBI Global index showed.

Moody’s will hold a conference in Istanbul on Nov. 21.

Rating

“Turkey’s benchmark rate fell to an all-time low with expectations of a Moody’s upgrade before the November 21 meeting and on the Barclays report stating $2 billion to 2.5 billion of inflows for Eurobonds if a second investment grade follows Fitch,” Isik Okte, a strategist at Halk Securities in Istanbul, said in e-mailed comments.

Moody’s raised Turkey to Ba1 on June 20, one level below investment grade and three steps below Russia, citing a “significant” improvement in public finances and policies. Greater resilience to external shocks is a prerequisite for raising it to investment grade, the ratings company said in an e-mailed statement on Oct. 30.

“We are seeing goods sums of real money entering Turkey,” Sercan Kiliclar, a fixed-income trader at Akbank TAS (AKBNK), said in e- mailed comments. “The Barclays note affected the Eurobond market and the credit default market.”

Credit-default swaps on Turkey fell 3 basis points to 150 today, falling below Russia for the first time October last year.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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