Turkey Raised to Investment Grade by Moody’s on Debt Cuts

Turkey’s first investment-grade rating from Moody’s Investors Service in two decades sent bond yields to record lows as stocks rallied.

Moody’s said in a statement yesterday that it lifted Turkey’s government bond ratings by one step to Baa3, the lowest investment grade, from Ba1. The move puts Turkey’s credit rating at the same level as Spain, Colombia and India. The outlook was set at stable.

The ratings boost reflects “recent and expected future improvements in key economic and public finance metrics,” Moody’s analysts wrote in the statement. Turkey’s “progress on structural and institutional reforms that Moody’s expects will reduce existing vulnerabilities to shocks to international capital flows over time” was also cited.

Yields on two-year benchmark bonds fell 12 basis points to a record low of 4.68 percent at 10:11 a.m. in Istanbul. Ten-year lira bond yields dropped below 6 percent for the first time and were last at 6.01 percent.

The main Istanbul stock exchange index jumped as much as 1.3 percent to 93,116.29, its highest since at least 1988, extending its advance this year to 18 percent. It last traded 0.2 percent higher.

The lira weakened for a seventh day, dropping 0.3 percent to 1.8287 per dollar in its longest streak of losses since June 2011.

Long Overdue

The move was “long overdue as the market has long traded Turkey as investment grade,” Tim Ash, chief emerging-markets economist at Standard Bank Group Ltd. in London, wrote in an e-mailed note. “This should bring a whole new investor base to Turkey.”

The ratings change came as Prime Minister Tayyip Erdogan was in Washington to meet with U.S. President Barack Obama and to promote trade and investment for Turkey. Erdogan brought a delegation of business leaders to the U.S. capital, where he also addressed the U.S. Chamber of Commerce, the nation’s largest business lobbying group.

U.S. businesses would find a “friendly atmosphere” and a stable economy in Turkey, Erdogan told the Chamber, citing recent investments by American companies such as Ford Motor Co. the second-largest U.S. automaker, and Amgen Inc., the world’s largest biotechnology company. “We are inviting you to invest in Turkey.”

At 4.78 percent, yields on Turkey’s dollar-denominated bonds due in 2041 are 49 basis points, or 0.49 percentage point, higher than similar-maturity Colombian securities, according to data compiled by Bloomberg. The gap has narrowed from as high as 205 basis points in January 2012.

Borrowing Costs

The lira wiped out a decline of as much as 0.9 percent to trade little changed at 1.8241 per dollar as of 5:32 p.m. in New York. The currency has lost 2.2 percent in 2013, data compiled by Bloomberg show.

Turkey’s debt level has fallen by 10 percentage points since 2009 to 36 percent of gross domestic product, Moody’s said. Government efforts to reduce energy imports help improve the country’s current account deficit, the analysts said.

The nation was last rated investment grade by Moody’s in 1994 and Turkey received its first investment-grade rating in 18 years from Fitch Ratings Nov. 5. Standard & Poor’s rates the country BB+, one level below investment grade.

Turkey should prepare for appreciation in the lira after the Moody’s decision, Economy Minister Zafer Caglayan said in an e-mailed statement. The move will cut foreign borrowing costs for Turkey and boost financing options for the nation’s companies, Caglayan said.

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