While Turkiye’s credit risk premium (CDS) has decreased in recent months, interest in eurobonds, whose prices have increased, continues.
While Turkiye’s 5-year CDS premium, which exceeded 690 points before the May 28 elections, decreased to 364 points with the elimination of political uncertainty and the steps of the new economic management, the returns on assets that have a negative correlation with the CDS premium are also in the focus of investors.
Eurobonds, which are “usually long-term debt instruments offered for sale in foreign currencies in international markets by states or companies in order to obtain resources outside their own countries”, are also on the radar of investors with the returns they provide in this process.
Eurobond funds invest mainly in Turkish Eurobonds issued by the Treasury of the Republic of Turkiye and private sector Eurobonds.
At least 80% of the fund’s total value is constantly invested in dollar-denominated public and private sector foreign debt instruments (eurobonds) issued in Turkiye.
The fund aims to benefit from the returns of eurobonds to the maximum extent by dynamically using the portfolio maturity and asset allocation within the framework of market interest rate prediction.
According to Turkiye Electronic Fund Trading Platform (TEFAS) data, eurobond funds have provided returns between 49% and 55% since the beginning of the year.
“We see positive pricing”
Deniz Portfolio General Manager Cem Onenc, in his statement to the AA correspondent, said that the returns obtained in Eurobond funds vary according to maturities, while there are lower returns in short terms, returns in the range of 7-8% can occur in long terms.
Emphasizing that changes in the dollar/TL exchange rate and increases/decreases in the CDS premium have an impact on fund prices, Onenc stated that Eurobond funds provide a serious tax advantage to their investors and that investors pay only 10% withholding tax on their earnings.
Stating that investors and international financial institutions evaluate the decrease in Turkiye’s risk premium positively, Onenc said, “Eurobond prices are increasing and yields are decreasing.”
Onenc stated that the interest in eurobonds continued as the uncertainty disappeared in the post-election period and said, “We see positive pricing.”
“Eurobond funds are an extremely suitable investment tool for investors”
Fiba Portfolio General Manager Hakan Basri Avci also reminded that investors who purchase the issued eurobonds generally earn coupon payments at certain periods during the maturity of the eurobond and receive their principal back at the end of maturity. “Although Eurobonds are issued abroad in international markets, domestic residents and companies, apart from foreign investors, also invest heavily in these assets.”
Avci made the following evaluations regarding the returns obtained in eurobond funds:
“Eurobond funds are open-ended investment funds in the form of a pool that purchase and hold Eurobonds in the market on behalf of their customers, obtaining coupon income in return and also creating income for their investors through value increase. On the other hand, an important point to keep in mind is the fluctuations that Eurobonds will make in terms of foreign currency and TL due to periodic holding, depending on CDS and interest rate fluctuations.
When the investor purchases the Eurobond fund, he should pay attention to the interest and CDS levels in the market and determine the holding period of his investment by paying attention to these levels. If the general interest and CDS levels in the period when the Eurobond funds are disposed of are lower than when they are purchased, the investor may obtain extra holding income in foreign currency, and if they are higher, the investor may obtain a holding loss.”
“There is no need to make this timing if Eurobond funds are held until maturity for a certain period of time and expire at the end of maturity.” Commenting on this, Avci made the following assessment, noting that the credibility of the issuing company or bank, the economic developments in the country where the issuer is located and the developments in the world financial markets affect Eurobond prices:
“Eurobond funds are extremely suitable investment instruments for investors who want to invest in foreign currency and who want to contribute to the development of Turkish companies and banks. They also offer significant taxation advantages compared to foreign currency deposits. The road map put forward after the election and the steps aimed at increasing macroeconomic stability are generally met with positive comments by foreign investors and international financial institutions. The road map put forward after the election and the steps aimed at increasing macroeconomic stability are generally met with positive comments by foreign investors and international financial institutions.
The decrease in CDS risk premium developed in parallel with the increase in these positive perceptions both at home and abroad. In parallel with the post-election developments, there is a general decrease in Eurobond interest levels. This can be considered as a sign that the interest of both foreign and domestic investors in Eurobonds is increasing.”
Source: AA / Prepared by Irem Yildiz