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Barclays Says Second Turkey Credit-Rating Upgrade on Horizon

Barclays Plc said that Moody’s Investors Service may follow Fitch Ratings in upgrading Turkey’s credit to investment grade later this month, triggering as much as $2.5 billion in extra demand for Turkish Eurobonds.

“With Fitch making the first move, we think Moody’s is likely to follow in the next five to six months,” analysts including Koon Chow and Christian Keller at Barclays’ investment banking unit in London wrote in a report sent by e-mail today.

A second investment-grade rating would establish Turkey’s credentials for most international funds and make it eligible for inclusion in more indexes, helping attract between $2 billion and $2.5 billion into Turkey’s hard-currency debt, they wrote.

Fitch this week raised Turkey to BBB-, its lowest investment-grade level, citing easing near-term financial risks, a moderate and declining government debt burden, a sound banking system, favorable growth prospects and “a relatively wealthy and diverse economy.” Moody’s rates Turkey one step below investment grade with a positive outlook.

A second upgrade would also increase the likelihood of lira-denominated bonds being included in benchmark indexes, drawing another $2 billion to 2.5 billion in funds, Barclays said. At present, lira bonds aren’t included in the Barclays Global Aggregate Index, which covers debt in 23 currencies.

Best Performer

Fitch’s upgrade has helped Turkish bonds extend their run as the best performers this year among major markets worldwide, according to data compiled by Bloomberg.

Yields on Turkish benchmark bonds fell nine basis points, or 0.09 percentage point, to 6.76 percent at 4:40 p.m. in Istanbul, declining for the fourth day to the lowest on record.

Foreign ownership of Turkish bonds hit a record high of $56.8 billion as of Oct. 19, according to Turkey’s central bank, helping the lira to appreciate 1.7 percent over the past month against the dollar. It trailed only the South Korean won among 25 emerging-market currencies tracked by Bloomberg. The lira gained 0.2 percent to 1.7821 per dollar today, close to a six-month high.

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