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Emerging bonds: Turkey up on budget, growth

LONDON: Turkish debt prices rose on Monday after parliament on Saturday passed a tough budget in line with IMF requirements and a data release showed the economy growing more than expected.

"The budget was good and the growth was much better than expected," said one emerging market debt trader in London.

Turkey's 2030 Eurobond rose 5/8 to trade at 86-3/4, although it is still well below the 101 points it traded at on March 18, when there was still optimism the country would receive a massive US aid package for aiding the US war on Iraq.

Since then however, Turkey refused to allow US troops through to attack Iraq and the US pulled an aid package worth up to $30 billion and Turkish debt has been downgraded to B- by rating agency Fitch, the bottom end of speculative grade.

"The prices have been very volatile, there is an argument to say it should not have fallen as far as it should, you get rating and analyst downgrades which generally mean the bottom has been reached," said the trader.

Data on Monday showed Turkish gross national product (GNP) grew 7.8 percent year-on-year in 2002, well above market expectation and a government target of 6.5 percent, the highest annual rate since 1993, due in part to strong agriculture sector performance and exports.

That combined with an agreement in parliament on Saturday to a budget which aims to run a primary budget surplus, including a some state owned enterprises, at 6.5 percent of gross national product, in line with the International Monetary Fund target for the country's $16 billion aid programme.

"The hope now is that with the budget approved the IMF will sign off on the fourth review of the Stand-by programme, allowing disbursement of 1.6 billion in funds in April," said Bear Stearns emerging market analyst Tim Ash in a note to investors.

MARKET SOLID

Elsewhere, emerging market debt prices were solid in the face of a sell-off in equities and rising oil prices, as the US and British war in Iraq appeared to drag on longer than anticipated.

Analysts say emerging market debt has benefited from uncertainty in equity markets and corporate credit as it offers one of the few genuine opportunities for yield over safe-haven G7 government debt.

This situation is helped by the peak two-month period of coupons and amortisation of $4.7 billion from issues in the J.P. Morgan Emerging Markets Bond Index Global dollar and euro indices, according to research from Morgan.-Reuters