Ankara could tap international bond markets more than once before the end of the year, while a wave of debt sales from Turkish firms will spur overall emerging markets high-yield issuance, said Stefan Weiler, head of Central & Eastern Europe, Middle East and Africa (CEEMEA) debt capital markets at JPMorgan.
Türkiye’s government and companies – usually regular and prolific issuers in hard-currency fixed-income markets – had been largely absent in the run-up and the aftermath of the May election that saw President Recep Tayyip Erdoğan winning another five year-term.
But recent efforts to shift the country to a more orthodox monetary policy after years of soaring inflation and depreciating lira have seen a return of investor confidence.
Türkiye still has $2.5 billion (TL 68 billion) earmarked in its budget for issuance this year – but could possibly go further than that, JPMorgan’s Weiler told Reuters.
“Türkiye already addressed 75% of their international financing budget, so it is reasonable to expect another issuance to complete the budget and as in past years, Türkiye may also consider pre-financing future needs if market conditions are favorable,” said Weiler, declining to comment on the timing of any potential debt sale.
Foreign investors, positioned cautiously to Turkish assets in the run-up to the election, missed out on the strong rally and have now started reducing their underweight positions.
“There is a clear normalizing path of monetary policy and confidence is also being clawed back by the authorities through a number of market-friendly appointments this summer,” Weiler said.
Erdoğan appointed respected markets veteran Mehmet Şimşek as Treasury and Finance Minister, while former Wall Street banker Hafize Gaye Erkan became the country’s first female central bank governor.
“There is a general feeling that Türkiye’s credit story is turning around, but this view is not necessarily universal and municipal elections next year will provide another important checkpoint,” Weiler said.
Markets are expecting Türkiye to come to market within days, though some are pointing to a country ratings review by S&P Global Ratings scheduled for Friday. Fitch earlier in September upgraded Türkiye’s foreign currency outlook to “stable.” The country’s dollar-denominated bonds maturing in 2034 currently yield around 8.5%.
Meanwhile, the surge in confidence was reviving corporate bond sales. Domestic appliance maker Arçelik last week became the first Turkish corporation to launch an international bond since January 2022.
“We recently increased our forecast for EM corporate issuance by $20 billion to (around) $275 billion for 2023, and a big component of the increase is the activity we have seen and expect from Türkiye,” Weiler said.
September is generally a busy month for emerging market issuers, though adding to the momentum was increasing risk appetite from investors, he said.
However, that did not spread into all corners of the emerging high-yield markets, especially smaller and riskier sovereigns, so-called frontier markets – many of which are located in Africa.
“Most of Africa’s sovereigns would likely need to accept double-digit yields, given current secondary market levels, and that’s clearly not very appealing and would raise debt sustainability concerns,” Weiler said.
“I do not expect sovereigns in Africa to issue until base rates start declining and if our (U.S. Treasury) predictions hold, we could see a few of them returning to the international capital markets next year.”
