Turkey’s new bond with a coupon close to 10% demonstrated how high risk investors view the country. Nevertheless, its debt management office has demonstrated, and this is not the first time, its competence in the capital markets.
At first glance, the new January 2028 9.875% Turkish bond was not exceptional. At $1.5 billion, it was its lowest dollar amount in three years and offered a 10% yield on re-offer. It’s a level that has become something of a psychological turning point that has investors wondering why an issuer would be so desperate for the cash to accept such a price.
In addition, 27% of the higher than usual $1.5 billion went to local investors.
But Turkey has shown that no matter how well its government does to scare off international investors, a pragmatic and competent approach to bond issuance can retain enough buyers.
Inflation is running at 83% as the government pursues a policy of lowering interest rates to bring it under control. Nonetheless, Turkey pulled a pound more than three times the size of its deal.
The timing of the last bond was its most impressive feature. Last week, the primary market was closed while the US Federal Reserve met – and the market didn’t like the hawkish tone of that meeting. This week, on Thursday, there was a potentially disruptive US inflation reading.
But a rally on Friday and Monday this week was enough for a qualified issuer like Turkey to rush through the issuance window.
The spot price of the new bond has risen one percentage point since Monday. Perhaps Turkey should have waited, some will say, showing incredible hindsight. No one could have known on Friday what would happen later.
Turkey sold a sukuk in February, which also happened to be presciently timed, just eight days before Russia invaded Ukraine. It was his biggest transaction ever in the conventional or Islamic markets.
“Canny” is how an emerging markets sovereign strategist described Turkey’s ability to take advantage of market rallies.
The ability of Turkey’s debt managers to capture demand from bond investors at vital times cannot solve runaway inflation or other adverse effects of Turkey’s singular economic policy, but it is a huge financial benefit to the country.