Turkish corporate bonds slumped after President Recep Tayyip Erdogan was only narrowly denied victory in the first round of voting on Sunday, pushing them back to levels last seen six months ago.
The average spread on Turkish dollar-denominated corporate bonds including bank heavyweights Turkiye Is Bankasi and Turkiye Garanti Bankasi AS, and telecoms firm Turkcell Iletisim Hizmetleri AS jumped 105 basis points to 6.2 percentage points, the highest since Nov. 14, according to a Bloomberg index.
The cost of insuring the government’s debt against a default also spiked, as the results wrong-footed investors betting on an end to Erdogan’s unconventional economic policies,which include keeping interest rates well below the level of inflation. Citigroup strategists moved Turkish corporate credit to underweight from market weight, citing Erdogan’s “surprisingly strong” results in the first round of voting and bond market volatility.
“The next five years will likely be quite difficult for Turkiye,” said Omotunde Lawal, head of emerging markets corporate debt at Barings. “There is a risk that the government resorts to measures like restricting FX transactions for individuals or corporates, as they try to control the exchange rate, which makes it difficult for the corporates that have FX obligations to service their debts.”
The biggest loss was in June 2028 bonds of Anadolu Efes Biracilik ve Malt Sanayii AS, which slumped about 3.1 cents on the dollar Monday to 78.3 cents, according to data compiled by Bloomberg. The Istanbul-based brewer’s stocks also fell 10% on Tuesday for a second day.