Turkish bond yields fell for a second day as Moody’s Investors Service praised Turkey’s efforts to end its three-decade war with Kurdish militants, reinforcing speculation of a credit rating upgrade.
The yield on two-year benchmark bonds fell 13 basis points to 5.69 percent, the lowest level since Feb. 28, at the close in Istanbul. That extended this month’s drop to 66 basis points, the biggest since November, when Fitch Ratings upgraded Turkey to investment grade for the first in 18 years.
Turkey’s establishment last week of a parliament commission to monitor the peace process was a “visible and credit-positive step,” New York-based Moody’s said in a report published today. Ending the conflict will “improve southeastern Turkey’s attractiveness as a destination for foreign direct investment, which would deliver economic benefits and reduce Turkey’s external vulnerabilities,” Moody’s said.
“These comments from Moody’s support our overweight stance of Turkish local bonds,” Esther Law, a London-based director of emerging-market strategy at Societe Generale SA, wrote in an e-mailed note. A Moody’s upgrade “will undoubtedly broaden the investor base for Turkish debt to even non emerging-market dedicated investors, especially in this yield-hunting world.”
The lira strengthened 0.2 percent to 1.7862 a dollar at 5:15 p.m. in Istanbul, taking this week’s appreciation to 0.4 percent.
Moody’s and Standard & Poor’s both rate Turkey’s debt one step below investment grade, while Fitch raised it to investment grade in November. Moody’s has a positive outlook on its rating.