Europe’s biggest fund manager says it’s still not time to buy Turkish bonds, even after the biggest selloff in emerging markets this quarter.
While the yield on Turkey’s local-currency debt is “looking more attractive,” the swings in the lira reduce the appeal of owning the bonds, according to Esther Law, a London-based investment manager for emerging-market debt at Amundi, which oversees more than €1tn ($1.06tn) in assets worldwide.
The lira has lost 14% of its value against the dollar this quarter, plunging to successive records, and falling more than any other emerging-market currency over the period as a surge in US Treasury yields and continued political turmoil after a failed coup attempt in July kept foreign investors away. They’ve dumped Turkish bonds every week since October, taking their holdings to less than 20%, the lowest share since 2012.
The Ankara-based Treasury sold 10-year debt at a record-high yield of 11.55% on December 13. That pays investors almost 370 basis points above expected inflation over the next 12 months, as measured by a central bank survey of economists and businesses. Still, with a gauge of expected price swings of the lira versus the dollar reaching an 18-month high of 18.75% last week, the cost of hedging against currency swings threatens to eat in to potential returns for non-domestic investors.
The nation’s 10-year lira bond yielded 11.44% on Wednesday.
“The volatility in the Turkish lira is reducing the attractiveness of holding Turkish local bonds from a total returns perspective,” Law said.
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