Turkey Launches First Euro Bond Sale in Three Years Amid Positive Economic Developments

Key Takeaway

• Turkey launches its first euro-denominated bond sale in nearly three years with a 6.125% yield, aiming to raise €2 billion.
• Fitch Ratings upgrades Turkey to B+ from B, recognizing improved economic management and reduced vulnerabilities.
• Strategic financial moves include a potential buyback of short-term dollar bonds for longer maturities, enhancing debt portfolio management.

Euro Bond Sale

Turkey has initiated the sale of its first euro-denominated bonds in almost three years, leveraging a period of reduced risk premiums and increased market confidence. The sale, managed by Deutsche Bank, HSBC, JPMorgan, and Societe Generale, features a six-year tenor with a 6.125% yield, aiming to raise €2 billion ($2.18 billion). This move comes as Turkey's risk premium on bonds fell to its lowest since 2007, indicating a favorable borrowing environment for the country. The government's borrowing target for the year is $10 billion, and this sale will contribute significantly towards achieving more than half of that goal.

Economic Management and Ratings Upgrade

Turkey's return to the international bond market is buoyed by a recent upgrade from Fitch Ratings to B+ from B, acknowledging reduced macroeconomic and external vulnerabilities. This upgrade follows a series of policy reversals initiated by a new economic team led by Mehmet Simsek, which has focused on tightening monetary and fiscal policies. The central bank has raised the policy rate to 45% from 8.5% in eight months, aiming to curb one of the world's highest inflation rates and restore investor confidence. These measures have led to a decrease in Turkey's credit-default swaps, indicating lower borrowing costs and a more favorable view from international investors.

Strategic Financial Moves

In addition to the euro bond sale, Turkey has explored other financial strategies, including a potential buyback of short-term dollar bonds to replace them with longer-maturity debt. This approach aims to ease short-term repayment pressures and extend the government's borrowing maturities. Furthermore, Turkey had previously considered a $8.5 billion sukuk sale to the United Arab Emirates but put the plan on hold in favor of exploring cheaper borrowing options in the global bond markets. This decision reflects Turkey's strategic approach to managing its debt portfolio and capitalizing on favorable market conditions.