Moody’s Finally Opts to do the Decent Thing on Turkish Bonds

Posted on 06 October 2010

“Moody’s finally, finally opted to do the decent thing,” said Tim Ash head of emerging-market research at Royal Bank of Scotland Group Plc in London, in response to the ratings agency changing the outlook on Turkey’s Ba2 local and foreign-currency government bond ratings to “positive” from “stable,”.

This isn’t the official upgrade we have been waiting for, but analysts, like Tim Ash are hopeful that it precludes it.

“It is frankly ludicrous that Turkey is rated behind the European Union’s weak links, i.e. Hungary, Latvia and perhaps even Romania. Moody’s should move fast to get the rating anomaly out of the way,” said Ash.

Moody’s has Turkey at the lowest grade of all the ratings agencies at present. After a January upgrade, Ba2 is still 2 levels below investment grade, while Standard and Poor, upgraded Turkey to BB in February, and Fitch to BB+ (the highest non investment grade rating) in December.

All have hinted at upgrading Turkey soon to investment grade, and S&P have even said it will be upgraded within 18 months.

Meanwhile investors continue to act like upgrades are a foregone conclusion; the announcement sent yields down, with yield on 2 year Turkish benchmark bonds falling 7.98%, the lowest level in a year. Investors have also shown their faith in the Turkish economy over those falling apart in Europe; it was recently revealed that Turkish swaps were trading at the same price as those for Russian debt.

Swaps are basically an insurance against default on sovereign debt investments.

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