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Turkey pounces on rally to come back to bond markets

Turkey announced its first major bond sale since March on Tuesday, taking advantage of a global bond rally and a recovery in domestic sentiment over the last couple of months.

The Turkish Ministry of Treasury and Finance said it had mandated three banks for a five-year, dollar-denominated “eurobond issue” that bankers involved estimated would offer buyers around 6.65% interest.

“As part of the 2019 external borrowing program, the Ministry of Treasury and Finance has mandated BNP Paribas, Citigroup and HSBC for the issuance of a dollar denominated bond due 2024,” the Treasury said in a statement.

Those costs have come down over the past eight weeks. The interest rate premium, or spread, of Turkish government bonds to U.S. Treasuries has fallen from 600 basis points in late May to around 465 now.

The lira has rallied more than 7%, too, including a 2.8% leap on Monday after President Tayyip Erdogan said U.S. President Donald Trump had indicated no U.S. sanctions would be imposed over Turkey’s purchase of a Russian S-400 missile defence system.

The indicated 6.65% interest rate on the new bonds is slightly above the rate for Turkey’s existing bonds maturing in 2025, said Aberdeen Standard Investments portfolio manager Viktor Szabo.

“They are giving 15-20bps of concession (to existing 2025 bond) which is not great, and Turkish bonds have rallied a lot recently, so we will see what the appetite (for the new bonds) is,” he said.

Marcelo Assalin, head of emerging market debt at NN Investment Partners, a Netherlands-based asset manager added: “Investors will be a bit demanding in terms of premium as Turkey is a fundamentally challenged credit.”

“But liquidity is in the driving seat, and the expectation of more accommodative monetary policy in Europe is driving demand for paper that offers an alternative to low-yield government bonds in Europe.”

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