By Jason Webb<\/p>\n
Dec. 3 (Bloomberg) — Turkey is converging with the BRIC nations in the credit market as the country\u2019s economic rebound sends the cost of insuring debt against default to the lowest in at least a year compared with Brazil, Russia, India and China.<\/p>\n
The difference in the cost of five-year credit-default swaps on Turkey\u2019s junk-rated bonds narrowed to 70 basis points above China yesterday, within 10 basis points of the all-time low reached on Nov. 4, and was the cheapest in 19 months compared with Brazil at a gap of 22 basis points last week, according to prices from CMA, a data provider. Moody\u2019s Investors Service and Fitch Ratings lifted their outlook for Turkey to positive in the past two months.<\/p>\n
\u201cTurkey and China are very different countries, but this decline in perceived risk is the result of a degree of outperformance\u201d through the global credit crisis, Erkin Isik, an economist at Fortis Bank AS in Istanbul, said in a phone interview. Turkey \u201cwas hit by the crisis but less than others, and it\u2019s emerging relatively better as a result,\u201d he said.<\/p>\n
Investors are becoming more confident in Turkey as its economy grows at the second fastest pace in the Group of 20 major economies after China and record-low interest rates help spur local consumer demand. Prime Minister Recep Tayyip Erdogan, who has completed two stand-by loan agreements with the International Monetary Fund since his government came to office in 2002, broke off talks with the IMF in March as the country no longer needed a loan.<\/p>\n
Turkey swaps fell 21 basis points below Russia on Nov. 29, the lowest in a year, and are 37 lower than the State Bank of India, both of which have better credit ratings.<\/p>\n
Debt Reduction<\/p>\n
Turkey\u2019s government plans to reduce public debt to 42.3 percent of gross domestic product this year, 40.6 percent next year and 38.8 percent in 2012, and bring the budget deficit down to 2.8 percent next year from 4 percent this year.<\/p>\n
Turkey\u2019s GDP grew an annual 10.3 percent in the second quarter, matching China\u2019s as the fastest expansion the period among G-20 economies.<\/p>\n
Moody\u2019s raised its outlook to positive from stable on Turkey\u2019s rating of Ba2, two steps below investment grade, citing improvements in the economy and the country\u2019s debt management. Fitch Ratings lifted its ranking in December last year to BB+, one step short of investment grade, and switched the outlook to positive from stable last month.<\/p>\n
\u201cThe market has now priced in that Turkey will soon get upgraded to investment-grade status,\u201d said Arko Sen, a debt and foreign-exchange strategist for emerging Europe, the Middle East and Africa at Bank of America Corp.\u2019s Merrill Lynch in London. \u201cWe think that\u2019s something that\u2019s likely to happen as well, potentially towards the end of 2011.\u201d<\/p>\n
China, Brazil<\/p>\n
China, with the fourth-highest investment-grade ranking of Aa3 by Moody\u2019s and fifth-highest from Fitch at A+, released third-quarter GDP of 9.6 percent last month. Turkey will post third-quarter figures Dec. 10.<\/p>\n
Credit-default swaps on Turkey dropped to 139 basis points yesterday from 183 at the start of the year and as high as 849 in October 2008. The gap over Brazil was 29 basis points yesterday, down from 60 in January and 290 in October 2008, according to data compiled by Bloomberg.<\/p>\n
The contracts, which fall in price as perceptions of creditworthiness improve, pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrower fail to adhere to its debt agreements. A basis point is 0.01 percentage point.<\/p>\n
Debt Explosion<\/p>\n
Investment-grade ratings for Turkey would probably reduce the gap with Brazil swaps to zero, said Merrill\u2019s Sen.<\/p>\n
\u201cChina and Brazil and Turkey are all in a bucket of countries where debt-to-GDP is the same or declining,\u201d while in other places debt it\u2019s \u201cexploding,\u201d Inan Demir, chief economist at Finansbank AS, said in a telephone interview.<\/p>\n
Turkey swaps fell to 19 basis points below Russia from 255 basis points higher in June 2006. Russia is ranked two levels above junk by Fitch and S&P at BBB and three steps higher by Moody\u2019s at Baa1.<\/p>\n
The contracts for Turkey are 6 basis points from the lowest point in 19 months compared with the State Bank of India, which is rated Ba1 by Moody\u2019s, the highest junk rating, and BBB- by S&P, its lowest investment-grade ranking. The difference is 6 basis points from the year high of 43 in August.<\/p>\n
\u201cGood things are happening in terms of Turkish fundamentals, the strength of the banking system, the strong fiscal performance this year, the generalized investor comfort with Turkey, its high resilience to external jitters,\u201d said Paul Biszko, emerging-market strategist at Royal Bank of Canada in Toronto.<\/p>\n
–With assistance from Steve Bryant in Ankara. Editors: Linda Shen, Gavin Serkin.<\/p>\n
To contact the reporter on this story: Jason Webb in London at jwebb25@bloomberg.net<\/p>\n
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net<\/p>\n
via Turkey Converging With BRICs on Cheapest to China Default Swaps – BusinessWeek.<\/p>\n","protected":false},"excerpt":{"rendered":"
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