Turkey's new bond with a coupon near 10% demonstrated how high a risk investors regard the country to be. Nonetheless, its debt management office demonstrated, not for the first time, its skill in capital markets.
On the face of it, Turkey’s new 9.875% January 2028 bond was not stellar. At $1.5bn, it was its smallest in dollars for three years and offered a yield of 10% at reoffer. That is a level which has become something of a psychological watershed that makes investors wonder why an issuer would be so desperate for money to accept such a price.
Also, a higher than usual 27% of the $1.5bn went to local investors.
But Turkey showed that, no matter how good a job its government does in scaring away international investors, a pragmatic and skilled approach to bond issuance can keep enough buyers onside.
Inflation is running at 83% while the government pursues a policy of cutting interest rates to tame it. Nonetheless, Turkey drew a book more than three times the size of its deal.
The timing of the latest bond was its most impressive feature. Last week the primary market was closed while the US Federal Reserve met — and the market did not like the hawkish tone of that meeting. This week, on Thursday, there was a potentially disruptive US inflation reading.
But a rally on Friday and Monday this week was enough for a skilled issuer like Turkey to dart through the issuance window.
The cash price of the new bond has risen a percentage point since Monday. Perhaps Turkey should have waited, some might argue, displaying unbelievable levels of hindsight. No one could have known on Friday what would happen later.
Turkey sold a sukuk in February that turned out to be presciently timed too, coming just eight days before Russia invaded Ukraine. It was its largest deal ever in either conventional or Islamic markets.
"Canny" is how one EM sovereign strategist described Turkey's ability to take advantage of market rallies.
Turkey's debt managers' ability to capture bond investor demand at vital moments cannot fix the rampant inflation or other ill effects of Turkey's singular economic policy but it is a huge positive in the country's financial favour.