One-year credit default protection levels on the Republic of Turkey fell to 370 basis points/420bps on Thursday from 525bps/625bps the week before. A London-based trader said it was the first time investors entered the market since the Turkish crisis late last year. Interest came from private clients and was split between selling protection and buying credit-linked notes. In the credit-linked notes, the issuing banks sold protection to hedge the credit exposure embedded in the notes. Investors were buying short-end protection because this is the first part of the curve to regain liquidity after a crisis--it is seen as the least risky.
Caroline Gorman , emerging markets analyst at economic consulting firm 4CAST in London, said foreign investors are more confident about Turkey because the International Monetary Fund gave a positive review of the country's restructuring last week. It also recommended that Turkey receives the second installment of the USD10.8 billion supplementary reserve facility arranged last year. The government wrote a letter of intent about its restructuring plans in December to the IMF and "so far so good," according to Gorman. Domestic investors have moved back into bonds because overnight rates have become less favorable. The rates fell from 70% two weeks ago to less than 45% last week after the central bank bought dollars in the fx market.
Gorman warns the government still has an ambitious privatization plan to put through. It aims to raise USD6-7 billion, including USD2 billion from mobile phone licenses. USD1.1 billion of this will pay for the operational costs of privatization and the remainder will be used to pay off debt.
