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Turkiye’s credit risk premium decreased to 300 basis points with the market-friendly steps

While the “market-friendly” steps of the economic management continue to positively affect Turkish lira assets, Turkiye’s 5-year credit risk premium, which continues the downward trend that started in February, decreased to 300 basis points.

Although expectations for when major central banks on a global basis will start reducing interest rates have moved to May and June, the demand for TL assets continues to remain strong.

While the BIST 100 index in Borsa Istanbul breaks record after record, positive reports of foreign investment institutions regarding TL assets continue to be announced.

The recent increased interest in Turkiye’s foreign borrowing auctions has also reduced borrowing interest rates and extended maturities, increasing confidence in the implemented economic program and contributing to investor interest.

The demand for the borrowing tenders of three domestic institutions last week also gave an important signal about the positive perception of foreign investors regarding Turkiye.

With the impact of these developments, the downward trend in Turkiye’s CDS accelerated. Turkiye’s 5-year credit risk premium decreased by approximately 34 basis points from 334 basis points on February 2 to 300 basis points.

Analysts emphasized that the decline in Turkiye’s CDS was due to the country’s internal and external dynamics, and stated that the gap between the average of developing country CDS and Turkiye’s CDS decreased to the lowest level since January 12, with 132 basis points.

Domestic and international developments increase risk appetite for Turkish assets

In the last week, a total of $4 billion of external resources were provided in the foreign borrowing auctions of Eximbank, Turkiye Wealth Fund (TVF) and the Treasury, while the total demand was $23.8 billion.

Accordingly, a Eurobond in the amount of $3 billion with a maturity of May 15, 2034 was issued by the Ministry of Treasury and Finance on February 8. The coupon rate of the bond in question was 7.625% and the yield was 7.875%. Approximately 300 investors requested the issue, more than 3 times the total issue amount. The initial return expectation of the Eurobond issue was announced to the market at 8.375%.

In response to strong investor demand, a 50 basis point downward revision was made to the benchmark yield, and the final yield of the issue was 7.875%.

It is stated that the issuance is one of the issuances in which the downward revision from the initial return expectation was at the highest level compared to the issuances made in recent years. It was noted that the difference (spread) between the new issuance and the US Treasury bond yield was 371 basis points, and this difference marked the lowest premium difference since the 5-year issuance in February 2020, which paid 298 basis points on the US Treasury bond of similar maturity.

Analysts stated that giving clear messages that there will be no change in the policies to be followed despite the change of presidency in the Central Bank of the Republic of Turkiye (CBRT) reflects investor confidence, and noted that the CBRT’s Inflation Report meeting was also deemed “successful”.

Pointing out the importance of the US Congress’s decision to approve Turkiye’s purchase of 40 new and 79 modernized F-16 aircraft, analysts said that this increases the possibility that relations may develop even more positively in the coming period.

Source: Trthaber / Prepared by Irem Yildiz

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