Turkey’s dollar bonds rallied the most in emerging markets on Thursday after the United Arab Emirates pledged to buy as many as $8.5 billion sukuk from Ankara, in a move that may ease the government’s funding pressures.
The country’s longest-maturity notes maturing in 2047 rose more than 7 cents on the dollar to 71.1, bringing their yields below 8.7%, the lowest level since May. The rate on the security due 2033 dropped to 8.34%. Turkey’s sovereign-risk premium narrowed 19 basis points to 405 basis points, according to indicative quotes from JPMorgan Chase & Co.
Turkey and the UAE signed deals potentially worth $51 billion during President Recep Tayyip Erdogan’s visit to Abu Dhabi. The agreements envisaged Abu Dhabi Developmental Holding Co. PJSC, better known as ADQ, buying Islamic bonds from Turkey to fund reconstruction efforts following devastating earthquakes in February.
Credit default swaps also narrowed after the announcement of the deals as the inflows were seen boosting the country’s foreign reserves. The cost to protect against default risk in the next five years narrowed 14 basis points to 442 basis points.
But the lira failed to sustain the initial positive reaction to the news, as investors focused on the central bank’s rate decision Thursday. The currency fell 0.5% against the dollar for the worst performance among emerging-market peers.
The monetary authority is expected to raise its policy rate to 18.5% from 15%, according to the median estimate in Bloomberg poll.
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