CEE Bonds

Good old fashioned contagion has led the worsening situation in the Turkish market battering the rest of emerging markets this week as a plummeting lira and spiking Turkish CDS levels spooked buyers across CEEMEA and Latin America. Even western Europe has been feeling the heat as investors start to fret about Turkish exposure.

Asia’s offshore bond market ran to a near stand-still this week, with just one issuer selling a dollar bond. While the typical summer lull is to blame for at least some of the quiet, bankers were divided on whether the crisis in Turkey has made things worse for Asian issuers.

The Turkish lira rebounded strongly on Tuesday morning in London while sovereign CDS rallied 40bp — but investors are still calling for more action and concerns remain high that without a big rate rise from the Turkish Central Bank, the selling will shortly resume.

The currency crisis in Turkey has prompted analysts to hone in on the balance sheets of European banks, as they look for the first signs of an increase in income volatility following the introduction of the new IFRS 9 accounting standard.

Equity and debt markets are preparing for a full blown crisis in Turkey and even though its currency pulled back from its early-week lows, investors are worrying about debt defaults.

Yields on Turkey’s sovereign debt hit 20% this week, stoking fears of a debt crisis. But breaking the purported psychological importance of the 20% ceiling does not add much to the well-established litany of issues facing the country’s economy.

UniCredit’s senior management team had to fend off a barrage of questions about the bank’s exposure to Turkish bank Yapi Kredi this week, as yields spiked on Turkish local currency debt and the lira slid further against the dollar. UniCredit’s equity stake is accounted at €2.5bn, but worth less than €1.2bn in today’s market.

A pair of US sanctions against Russia could have potentially disastrous consequences for local and international bond investors, especially if a planned ban against the purchase of new sovereign debt takes effect, writes Lewis McLellan.

Fallout from a diplomatic incident drove yields on Turkish sovereign paper to almost 20% this week. While yields have come off their highs, the picture remains bleak for the beleaguered nation.

Sri Lanka and Turkey are preparing to sell their first Panda bonds, enticed by falling funding costs in China's bond markets. But given they both have lower credit ratings than previous sovereign Panda issuers, they may face an uphill battle as regulators scrutinise their finances.

The US has imposed sanctions on two senior officials in the Turkish government, prompting debt and equity markets to sell off and driving Turkish lira to over five to the dollar for the first time in history.

FMO has printed an onshore Georgian lari bond for the first time, with proceeds helping a drive to de-dollarise Georgia’s economy.