The Turkish government has made several fiscal policy changes since the president’s reelection in May in an effort to win back investors and address economic problems.
November 7, 2023, Adam Lucente, Al-Monitor.
Turkey will offer US dollar-denominated bonds for the first time since its elections in May, further indicating the Turkish government’s commitment to conventional fiscal policies since President Recep Tayyip Erdogan’s won that vote.
The Turkish government will offer a five-year dollar sukuk (an Islamic, bond-like debt instrument that complies with shariah law’s prohibition on interest) and is discussing an initial yield of approximately 8.875%. The offer will be worth at least $500 million, an unidentified source told Bloomberg.
The Turkish government did not immediately comment on the Bloomberg report.
Why it matters: Reuters predicted in September that Turkey could return to the international bond market before the end of the year as part of the country’s return to economic orthodoxy and efforts to lure back foreign investors.
Bloomberg reported that governments in emerging markets around the world are rushing to sell bonds at present. The push is in response to lower bond yields resulting from recent price increases in US Treasuries. When the price of a bond goes up, the yield falls, and the US market affects trends worldwide. The rise in US Treasuries is in part due to observers predicting that the US Federal Reserve is finished raising interest rates for the time being, according to the outlet.
CNBC reported on Tuesday that the yields for some US Treasuries fell as investors await comments from Federal Reserve officials expected on Wednesday and Thursday.
Turkey last issued dollar bonds in April, when it sold $2.5 billion in conventional bonds at a 9.3% yield. The price has risen since then and the yield is currently around 8.6%, according to Bloomberg.
The Turkish government has instituted several fiscal changes since Erdogan’s reelection. Last month, the Turkish Central Bank raised interest rates to a whopping 35% and also ended unpopular rules that compelled banks to buy Turkish government bonds as a penalty for lending at high interest rates.
Turkey has struggled with inflation for years, in part due to Erdogan’s unorthodox insistence that lower interest rates lead to lower inflation. After his reelection, he appointed Mehmet Simsek as finance minister and former Wall Street executive Hafize Erkan as central bank governor, resulting in a return to more conventional economic policies.