What is with the Eurobond switch? The Republic of Türkiye recently announced a Eurobond switch tender, successfully finalising a long-10-year yield set at 6.75% for USD3.5bn vs. IPT of 7.125%. In the meantime, Türkiye repurchased USD1.86bn of 2024 and 2025 bonds. The conversion of USD1.9bn of this short-term debt into 10-year debt will aid the Turkish Treasury in managing its liabilities more effectively. With this recent issuance, the Turkish Treasury has tapped global debt markets four times this year, achieving a total borrowing of USD8.6bn after subtracting the buyback figure. The target for 2024 is USD10bn, leaving approximately USD1.5bn remaining to meet this goal. Given the supportive global environment following major central bank rate cuts and increasing confidence within investment communities regarding Türkiye’s new economic programme, it is highly likely that the Turkish Treasury will not only borrow this amount but may also borrow additional amounts to pre-finance 2025 in the upcoming months.
One more rating upgrade? S&P has recently indicated that it could upgrade Türkiye's sovereign rating on 1 November, as its net foreign currency reserves are improving and the current account deficit (CAD) is narrowing quickly.
However, we believe that this is not the end of the story. Following the Eurobond switch, the reduction in short-term external liabilities is another positive factor for the credit rating. The availability of less costly external financing due to lower core rates, combined with improving external and domestic dynamics, should help Türkiye secure at least another rating upgrade in 1H25.
Inflation to continue falling, bringing the policy rate to positive real rate territory. We will have the September figures for inflation on 3 October. The market expects a MoM rise of 2.2%, which would bring the YoY CPI to 48.3%, down from 52%. The important question here is how the CBRT will respond as inflation falls. With the September inflation, the CBRT’s policy rate will start yielding a positive real rate; even if the CBRT cuts by 250bp in November, it will still be positive in real terms.
Light agenda for the next week. Manufacturing PMI (September, previous 47.8), CPI (September, previous 51.97% YoY), effective exchange rate (September, previous 62.34) are the only data to watch next week.