Page 74 - TURKRptOct19

27 issued €500mn worth of 10-year eurobonds at a cost of 2.55%.
Bond markets are always slow in the summer, but with Russia and Turkey, two of the biggest markets in the Europe/West Asia region, struggling to overcome economic difficulties over the period, there were almost no bond issues at all this year, according to the latest bneIntellinews CEE monthly bond market wrap published on September 5.
Investors ‘expect Turkish Treasury to start issuing longer-term bonds in wake of sharp interest rate reductions’. Investors who met Turkish authorities this week said they expect the Treasury to start issuing longer-term bonds after recent sharp cuts in interest rates, and that further rate reductions by the central bank would be moderate, Reuters wrote on September 24.
In July, the Treasury’s average cost of borrowing in Turkish lira with a fixed interest rate decreased to 20.4% after moving up to a high of 25.8% in April. Bankers reportedly estimate the present rate is below 20%, in tandem with official falls in inflation and more stability in exchange rates.
The Treasury’s last 10-year bond was issued in July 2018. It has since preferred shorter-term bonds to limit the long-term impact borrowing costs. Its average weighted maturity term fell to 28.9 months on average this year, from 71.4 months in January 2018.
“The Treasury and Finance Ministry will begin holding five- and 10-year bond auctions as of next year and it is therefore foreseen that foreign demand for government bonds will increase substantially,” one investor who attended the meetings was cited in the news agency’s report. The investor also said he got the impression that the Treasury may switch some short-term bonds issued in the first months of next year with longer-term debt.
The central bank pushed up its benchmark rate to 24% in September last year as inflation threatened to soar in the wake of the currency crisis, which ended up wiping away nearly a third of the value of the lira versus the dollar last year. Having put a floor under the embattled lira, and having seen its governor fired by President Recep Tayyip Erdogan in July after dissatisfaction among officials at the lack of monetary easing, the national lender has slashed its policy rate by 750 bp in total since July.
One interviewed investor said the central bank’s messages during the meetings gave the impression that rate cuts were mostly over. “We understand that they foresee more restrained adjustments with a focus on data ... regarding interest rates from now,” the investor said.
“We also understand from the central bank’s comments that they could lower their year-end (inflation) forecast, which is 13.9%, to 12 to 13%. Monetary policy is being shaped according to 8% inflation for next year.”
The Treasury and Finance Ministry’s new three-year economic programme, which it announces every year, is expected to be based on 5% growth for next year, the investor said.
Two other investors who attended the meetings were reported as saying that they had got the impression that a new draft law that would increase the Treasury’s borrowing limit could be introduced in parliament after the economic programme is released.
74 TURKEY Country Report October 2019 www.intellinews.com