Turkey could be locked out of bond market, US sanctions bite
london — The summer holiday in the bond market may be a long one for Turkey. New dollar issuance, including government and corporate-sector bonds, has dried up, with no sales recorded since April, according to data compiled by Bloomberg. And with corporatebond losses among the worst in emerging markets amid a plunge in the lira, the dollar-debt market may be shut for some time to come.
Yields on Turkish debt soared and the lira sank to new lows as President Recep Tayyip Erdogan vowed to retaliate, and said the country’s economy is under attack. The lira has weakened 7.4 per cent against the dollar this month, extending this year’s slide to 28 per cent.
“I would say right now the primary market is closed to Turkey,” said Meno Stroemer, the Zurich-based head of corporate bonds at Fisch Asset Management AG, which oversees about $10 billion.
“You have the US sending a loud message that an escalation of sanctions is very much on the table. We have seen what the sanctions can do in Russia and things can get very complicated and problematic; that is clearly a risk investors are dealing with.”
Bondholders investing in hardcurrency corporate debt from Turkey lost 10 per cent this year, even more than they did in Argentina, which had to go to the International Monetary Fund for emergency funding. Turkish banks accounted for four of the 10 worst-performing corporate bonds this year, according to data compiled by Bloomberg. The aver- age yield on Turkish dollar debt of 8 per cent compares with 7.42 per cent for Nigeria and 7.26 per cent for Pakistan, countries that have much lower credit ratings. Even that may not be enough to compensate investors for the risks of further US sanctions.
“Foreign investor demand can still be managed with yields on offer up to a certain degree,” said Okan Akin, a credit analyst at AllianceBernstein Ltd in London. —