Turkish stocks surged to a three-week high and government bonds advanced as Moody’s Investors Service’s decision to extend its review of the country’s credit rating drew investors chasing higher yields in emerging markets.
The Borsa Istanbul 100 Index climbed 2.3 percent, the most in emerging markets, as Moody’s said on Friday it would keep assessing the medium-term impact of last month’s failed coup, easing concern it would rush to downgrade Turkey to junk. The country’s five-year bonds advanced for the first time in more than a week and the lira strengthened for a third day.
“No news is considered rather as good news in light of the boost major high-yielding currencies are getting,” Luis Costa, a London-based strategist at Citigroup Inc., said by e-mail. “The markets are now deleting the chances of a deep growth scare in the U.S. economy. This is positive for emerging-market currencies, especially the high-yielders, such as the lira.”
The Moody’s move allayed concern that had initially led investors to ignore Turkey last month as they piled into emerging-market assets, seeking a refuge from lower rates and accommodative monetary-policy measures by global central banks.
The cost of insuring Turkey’s debt against default over five years fell 13 basis points to 248 basis points as of 5:49 p.m. in Istanbul, the biggest drop since March 11 on a closing basis. The decline trimmed the increase in credit risk since a failed coup on July 15 to 23 basis points.
Moody’s put Turkish debt on review for a downgrade on July 18 following the deadly attempted putsch that threatened to destabilize the country. Just days later, S&P Global Ratings lowered the nation’s credit rating to two steps below investment grade and warned that rising political uncertainty may scare off investment and undermine fiscal management.
The yield on Turkey’s five-year government bonds fell 19 basis points to 9.62 percent. The lira added 0.5 percent to 2.9838 per dollar.