ISTANBUL–When Turkey tapped international markets for a $1 billion bond sale this week, it was sure to reap the benefits of its first investment-grade rating in almost two decades. The outcome: record-low interest rates.
Investors clamored to get a slice of the debt due in January 2041, demanding three times more than Turkey’s offering. The deal is a new landmark, with the government’s borrowing cost dropping to 4.352%, or a mere 1.58 percentage points more than similar-maturity U.S. Treasuries. That is a third of interest rates Turkey paid a decade ago and compares with June, when the government sold debt at twice the spread over Treasuries.
Turkey’s government is taking advantage of financial markets that are awash with cash as national lenders worldwide are cutting interest rates to record lows, making it cheaper to borrow. And while the Federal Reserve and the European Central Bank clamor to prop up economic activity and fight a euro-zone debt crisis, Turkey is selling a story of resilient growth, slowing inflation, narrowing external-financing needs and declining debt stock.
“There’s a huge demand for any type of sovereign risk and Turkey is one of the good stories right now…. In this low-growth world, people are searching for yield. Turkey was not tested in the past year, and the current-account deficit managed to narrow nicely, inflation surprised on the downside, and the economy started to pick up. So, it’s really in a sweet spot,” said Viktor Szabo, who helps manage debt in emerging markets at Aberdeen Asset Management in London.
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