Turkish gov’t bonds gaining in appeal: BNP

ISTANBUL

Turkish government bonds are becoming more attractive following the Central Bank’s monetary policy adjustment in recent months, BNP Paribas has said in a recent report.

Policy rates and local deposit rates have already adjusted sufficiently to provide positive ex-ante real rates versus inflation expectations, it said.

Since June, the central bank has increased the policy rate, the one-week repo auction rate, to 35 percent from 8.5 percent, while also simplifying the macroprudential framework.

“Long-end rates also suggest the Central Bank’s credibility gap is closing and that the market is pricing in a prolonged positive real-rate environment,” said the report.

Türkiye’s fiscal financing needs are high, particularly into the first quarter of 2024, but the Treasury’s elevated cash balance and improving fiscal performance mitigate supply risks, according to BNP Paribas.

“Despite negative current account seasonality going into the winter months, the Central Bank has improved FX reserves and debt roll-overs are running high, which reduces the acute risk of currency shock.”

Historically, the average ownership rate of domestic debt and equities stands at around 20 percent and for hard currency debt it is around 55 percent, the report noted.

"If one assumes a gradual return to these historical averages, we estimate that would imply almost $75 billion of inflows [$20 billion TURKGB, $35 billion equities, $20 billion hard-currency bonds],” it said.

Investor confidence will be further strengthened and foreign fund inflows into Türkiye will accelerate, Finance Minister Mehmet Şimşek said on Nov. 15.

“The results of the economic program we are implementing will be clearly seen as of the second half of 2024,” Şimşek wrote on the social media platform X on Nov. 15.

Deutsche Bank said in a report released earlier this month that Türkiye’s domestic sovereign bonds are likely to be the most attractive investment in 2024.