Turkey Default Swaps Trade Near 4 1/2-Year Low, Beating Nine EU Members

Credit-default swaps on Turkish government debt traded near a 4 1/2-year low, beating nine European Union members including higher-rated Belgium, as the Federal Reserve’s latest stimulus plan fueled a rally in emerging markets.

Turkish swaps were at 118.5 as of 10:12 a.m. in London today, after falling 10 basis points to 117.82 yesterday, the lowest closing price since March 2006, according to data provider CMA. That compares with a high of 829 basis points on Oct. 23, 2008, during the global credit crisis, and a 2010 peak of 225 on May 7, according to data compiled by Bloomberg.

The contracts for Turkey slid below those of higher-rated Belgium this week, according to Bloomberg data. Belgium default swaps were at 128 basis points today, according to CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent if a debtor doesn’t adhere to its agreements.

The ISE National 100 Index of stocks rose 0.2 percent to 71,049.41 as of 1:38 p.m. in Istanbul, compared with a record of 71,006.82 reached Oct. 22.

Turkey’s sovereign balance sheet “looks stellar,” Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, wrote in an e-mail. “Turkey is proving to be a vibrant, dynamic economy, and unemployment is actually falling as the economy is creating jobs.”

Moody’s Rating

The country’s unemployment rate fell to 10.6 percent in July from 12.8 percent a year earlier as the economy grew about 11 percent annually in the first half of 2010, rivaling China for the fastest expansion in the Group of 20 economies. The country’s sovereign debt rating of Ba2 at Moody’s Investors Service is 10 steps lower than that of Belgium, which is ranked at Aa1, the second-highest grade.

Belgium has increasingly been compared with so-called EU peripheral nations such as Greece, Ireland and Spain as a leadership vacuum constrains efforts to cope with Europe’s third-biggest debt after Italy and Greece.

Yields on Turkish benchmark two-year lira bonds climbed 5 basis points to 7.65 today, according to an ABN Amro index. The lira weakened 0.3 percent to 1.3986 per dollar as of 2:44 p.m. in Istanbul.

To contact the reporter on this story: Jack Jordan in London at [email protected].

To contact the editor responsible for this story: Gavin Serkin at [email protected]

via Turkey Default Swaps Trade Near 4 1/2-Year Low, Beating Nine EU Members – Bloomberg.