Poland and Croatia should think again!
Turkey Breaks Records with Cheap Long-Term Bond Issue
Published April 10, 2013
Dow Jones Newswires
The $1.5 billion in new bonds maturing in 2043, launched Tuesday, deliver a yield to investors of 4.95%, just two percentage points above borrowing rates in U.S. Treasury bonds of a similar tenure. Investors bid for three times more than the amount offered, the treasury said.
The deal means Turkey has now met over $4 billion of its $6.5 billion financing needs from the international market for the year, said Erste Securities in a note.
The deal represents cheap funding that the country is likely to welcome, but the danger of inflows pumping up its currency--the lira--makes this a mixed blessing.
Turkey has had blowout deals before. In January, it sold $1.5 billion of 10-year bonds at a record low yield for that maturity of 3.473%. The latest deal indicates the situation is likely to persist as major central banks pledge to flood markets with cheap cash.
Already, Turkish government bonds, some of the highest-yielding in the European time zone, have climbed since the Bank of Japan last week pledged to buy huge quantities of its local debt--a move that is likely to push Japanese investors overseas in search of yield in greater volumes. Expectations of these flows have pumped up overseas bonds of many kinds, and Turkey's high, if shrinking, yields put its bond squarely on the target list.
This helps Turkey to borrow more cheaply and cuts its debt-servicing costs. But it comes at a price. Inflows of foreign cash could push the lira above the levels that the Central Bank of Turkey is comfortable with, analysts say, potentially prompting action to damp the currency.
Turkey Central Bank Governor Erdem Basci on Tuesday repeated that the central bank wouldn't be indifferent to excessive appreciation or depreciation of the Turkish currency.
Amid rate cut expectations from the central bank, the yield on two-year benchmark government bonds fell to 5.81% Wednesday, the lowest level since March 13.
"We think the appreciation pressure on the currency will increase the pressure on the central bank to take bolder rate action in the [policy] meeting next Tuesday," said Erkin Isik, a fixed income strategist with TEB-BNP Paribas. "The central bank may choose to cut the lower bound of the corridor and the key policy rate, to strengthen the effect on the currency. However, the impact would be limited by their policy of not giving excess lira liquidity to banks, in order to control the loan growth."
Write to Yeliz Candemir at yeliz.candemir@dowjones.com
Copyright © 2013 Dow Jones Newswires
http://www.foxbusiness.com/news/2013/04/10/turkey-breaks-records-with-cheap-long-term-bond-issue/
Posts
