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Unpredictable Politics Pushes Turkey Credit Risk Above Junk-Rated Russia 

June 2, 2016

Constantine Courcoulas, Bloomberg

Unpredictable politics and a clouding economic outlook have persuaded investors that Turkey’s debt is now a riskier bet than junk-rated Russia.

The cost of insuring Turkish bonds against non payment jumped in May by the most in eight months, with five-year credit default swaps widening 33 basis points to 273, surpassing Russia for the first time since mid 2014. The two first crossed on May 4 as Turkish bonds retreated in the midst of a political row between President Recep Tayyip Erdogan and former Prime Minister Ahmet Davutoglu, culminating in the premier stepping down.

While looming U.S. rate increases weighed on all emerging markets last month, Turkish assets came under further pressure as Erdogan, who has repeatedly called for looser monetary policy, moved to concentrate state power in his own hands. Even though Moody’s Investors Service considers Turkey investment grade, political turmoil has pushed its five-year CDS contracts 12 basis points above Russia which the agency downgraded to junk in 2015 as its economy bore the brunt of international sanctions in retaliation for its role in the Ukraine conflict and a collapsing oil price. Read more


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