Turkish deal hopes rise but swap costs must fall

A spate of Turkish senior unsecured deals this week has raised hopes that covered bond issuance will soon follow, especially since two banks have now registered mortgage programmes. However, the cost of the cross-currency swap is too high and must fall further if banks’ mortgage loan books are to be funded through euro covered bonds on a sustainable basis. In contrast, because SME assets are higher yielding they can bear the cost of swaps, suggesting that a euro SME-backed Turkish covered bond is more likely to be seen first.