Turkey’s Peace Drive to Boost Creditworthiness, Moody’s Says

Turkey is making progress in its effort to end a three-decade war with Kurdish militants, and an agreement would boost investment and trade and enhance the country’s creditworthiness, Moody’s Investors Service said.

Turkish stocks rose for the first time in three days after the statement was released, while benchmark sovereign bond yields continued their rally for a second day and the lira gained.

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. The war-damaged region has lagged in attracting investment even though its proximity to oil-rich northern Iraq offers “favorable trade opportunities,” it said.

The Borsa Istanbul National 100 index climbed 2.1 percent to 84,102.61 points at the close in Istanbul, paring this month’s loss to 2.1 percent. Two-year benchmark yields fell 13 basis points to 5.69 percent, the lowest level since Feb. 28. The lira rose 0.2 percent to 1.7861 per dollar, extending this month’s gain to 1.4 percent.

Investment Grade

“These comments are even more important than the Standard & Poor’s move,” Isik Okte, a strategist at Halk Invest, a unit of state-run Turkiye Halk Bankasi AS, said in e-mailed comments from Istanbul, referring to S&P’s March 27 decision to raise Turkey to one level below investment grade. The lira, rates and stocks have been outperforming emerging market peers since last year on expectations that Moody’s will follow Fitch Ratings in raising Turkey to investment grade, Okte said.

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 last year. Moody’s has a positive outlook on its rating.

Prime Minister Recep Tayyip Erdogan’s government has started talks with the Kurdistan Workers’ Party, or PKK, breaking a Turkish political taboo. The group, which has been fighting for Kurdish autonomy since 1984, has announced it will withdraw its fighters to camps outside Turkey, as talks continue over a settlement that will broaden the rights of Turkey’s Kurds.

Before it's here, it's on the Bloomberg Terminal.