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Morgan Stanley strategists say Turkey’s dollar bonds now look overpriced after leading a rally in emerging high-yield markets in recent weeks.
“In absolute and relative terms, Turkey looks expensive,” Neville Mandimika, London-based sovereign emerging markets strategist at Morgan Stanley, said in a note to clients. “Given the uncertain political trajectory, we maintain our aversion stance as the risk/reward ratio is clearly not favourable.”
Morgan Stanley said 10-year yields are now trading at a six-month z-score nearly two standard deviations below the mean, which is near multi-year lows and compares unfavorably to similarly rated peers. . Meanwhile, there are risks related to monetary policy, next year’s election and the possibility of further bond sales.
Turkish dollar-denominated bonds are on a tear, rising for a fourth day on Wednesday to push 10-year yields down four basis points to 9.8%, the lowest level since mid-September. This followed the sale of $1.5 billion in bonds due 2028 on Monday, although the country was still $2 billion short of its borrowing target for the year.
Turkey rates new dollar bonds as it leads emerging market debt rally
Mandimika said more shows remained a major risk.
“Historically, Turkey issued when the market was trading relatively well: low volatility and at times when EMBI spreads were compressing. They could still come to market for another $2 billion if market conditions hold,” he said.
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