Turkish bond prices fall despite new government

LONDON (Reuters) – Turkish debt fell in price yesterday as players locked in some profits even though the country appointed a government that merchant bankers favor, dealers said. «Turkey has succumbed to a bit of profit-taking. We saw some locals selling yesterday. Buying has run out of steam and we are pulling back,» said a trader at a US bank. At 12.46 p.m., Turkey’s benchmark 2030-maturity dollar bond was quoted at 101.5 percent of face value, down 0.375 points on the session. It had traded as high as 102.75 on Monday, when local accounts came in to take profits by selling it at 102.5, he said. Turkey’s segment of the industry benchmark, J.P. Morgan’s Emerging Market Bond Index plus, was quoted at 718 basis points over Treasuries, up 14 basis points in yield on the session, indicating rising perceptions of risk. The 2030 bond has risen 12.375 points from its lows immediately before the country’s November 3 election. Although that brought to power the Justice and Development Party, known by its Turkish initials AK, which was not the market favorite, investors expressed relief that the AK received sufficient votes to govern alone – the first time a single party has managed to do so since 1987. Investors in Turkey prefer a solid AK government to the fractious three-party coalition it replaced, even though it has grown from the roots of two previously banned Islamist parties. Rowing politicians sparked a market crisis in February 2001, sending domestic rates soaring and leading to a 9.4 percent economic contraction last year. Coalition rifts, which brought down the government, forced the 2030 bond down to 78.25 percent of face value this July. Turkey finally formed a new government on Monday, appointing AK deputy leader Abdullah Gul as prime minister and Ali Babacan as economy minister. «The first impression we get from the list of appointees is that Gul has formed one of the best cabinets available. As most of the ministers are from the liberal wing of the party, we expect the Cabinet to receive a warm welcome from the markets,» said J.P. Morgan in a research report. Analysts said that markets like Gul because he is a Western-educated economist. Economy Minister Babacan is a 35-year-old former financial consultant.

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