Weak demand to Treasury auctions
The Turkish
Treasury issued TRY 1.3bn and TRY 2.0bn of 2y and 10y fixed coupon bonds
yesterday. Demand in auctions was weak, with bid-cover ratio in 2y and 10y
auctions at around 1.5, lowest since May. As a result, average yield in these
auctions was at 10.13% and 11.08% respectively, about 5bp above market
consensus. After the auction, yields eased marginally to 10.09% and 11.04%, but
these are still 20bp above Friday close.
The Treasury
targets to issue TRY 8.7bn of bonds this month, including TRY 1bn of rent certificates
next week. Other auctions are TRY 5y fixed coupon bond and 5y FRN auctions
today and 12m bill next week. Treasury will again target TRY 3-3.5bn in
auctions today.
While this is
close to its recent peak at 11.3% attained in January this year, average EM
local bond yield reversed only one-third of the decline in average yield, as
seen in Chart 2. So Turkey bonds are continuing to underperform amidst the
global sell-off. Some recovery in line with easing US yields looks likely today
but it’s too early to call for a trend reversal. At home, we think the
short-end will be anchored by CBRT’s funding rates. Also, weak labour market
data and deterioration in budget deficit today will likely put further
steepening pressure on the curve.