Turkey’s sovereign dollar bond jumped as investors waited for Erdogan’s economic team

LONDON, May 30, 2010 (FBC) – Turkish sovereign bonds rose more than two cents against the dollar as markets awaited President Recep Tayyip Erdogan, the winner of Sunday’s presidential election, to name a cabinet to carry out economic policies.

The price of the country’s international notes rose above the curve as long-term bonds rose sharply, Tradeweb data shows.

The 2045 note gained 2.2 cents on the dollar and the 2043 bond was up 1.7 cents by 1022 GMT. Turkey’s 5-year credit default swap (CDS) fell 2 basis points to 662 basis points from Monday’s close, S&P Global Market Intelligence said. Insurance rates for Turkish sovereign debt started at 513 bps for the year.

Erdogan, who was re-elected to a five-year term on Sunday with more than 52 percent of the vote, is expected to announce his cabinet later this week.

“There is hope that (Mehemet) Simsek will come back,” said Timothy Ash, senior sovereign strategist at BlueBay Asset Management, a market-friendly former finance minister.

“It is generally assumed that anyone who takes power in the economic group will have to weaken the lira.”

Turkish currency It fell 1.2 percent to a low of 20.35 against the dollar, compared with Monday’s close of 20.0990, its worst trading day in eight months.

“Erdogan’s hiring of Simsek is being implemented,” Ash added. Erdogan met with former economy czar Simsek on Monday, two sources close to the matter told Reuters. The two sources declined to comment on the content of the meeting.

Inflation hit a 24-year high of more than 85% last year, fueled by Erdogan’s unconventional monetary policy of cutting interest rates despite high inflation.

Investors are watching whether Erdogan will continue his policies or opt for a more conventional path after an internal party group outlined options in recent weeks.

Victor Sabo, investment director in the emerging markets debt group at abrdn, said the rise in bond prices showed investors were “covering their shorts in hopes of more rational economic policies”.

“The country will continue to be led by a president who believes in heterodox policies,” Sabo added.

“Simsek will be a more market-friendly face for the finance ministry, but why do investors believe that he will have more power to correct course than his predecessors against Erdogan’s final vote?” Hasnain Malik, Head of Equity Research at Telemer said.

Reporting by Georgina do Rosario; Editing by Karin Strohecker, Giles Elgood and Mark Heinrich

Our Standards: The Thomson Reuters Trust Principles.


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