There were two quite interesting sovereign bond auctions last week.
The one that got the world's attention was the Greek bond sale, which started well on Monday, but quickly turned into a tragedy by mid-week. Everyone took her own lessons out of this mess, but I like most the FT overmarketed interpretation: I'll think twice before comparing and jumping to conclusions from bid-to-cover ratios in the future.
Around the same time, Turkey quietly did a 10-year bond, also with pretty good demand. Anecdotal evidence suggests that insurance and private pensions were the big buyers, with banks also in it for hedging mortgage risk. While these are the common buyers of long-term bonds in the US and other developed markets, given the relative shallowness of Turkish markets, I am not sure if that is indeed the case. If anything, the 11.24% yield, with the benchmark around 9%, means a rather flat yield curve. Moreover, it doesn't make much sense that the yield came out to be only 75bp above the ten year cross currency swaps. Something fishy is going on, but I haven't talked to my trader buddies yet, so I have no idea what it is...
The one that got the world's attention was the Greek bond sale, which started well on Monday, but quickly turned into a tragedy by mid-week. Everyone took her own lessons out of this mess, but I like most the FT overmarketed interpretation: I'll think twice before comparing and jumping to conclusions from bid-to-cover ratios in the future.
Around the same time, Turkey quietly did a 10-year bond, also with pretty good demand. Anecdotal evidence suggests that insurance and private pensions were the big buyers, with banks also in it for hedging mortgage risk. While these are the common buyers of long-term bonds in the US and other developed markets, given the relative shallowness of Turkish markets, I am not sure if that is indeed the case. If anything, the 11.24% yield, with the benchmark around 9%, means a rather flat yield curve. Moreover, it doesn't make much sense that the yield came out to be only 75bp above the ten year cross currency swaps. Something fishy is going on, but I haven't talked to my trader buddies yet, so I have no idea what it is...
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Reality Check: Political Will & Policy
Since the early 1990’s Istanbul has had the potential to evolve into a financial centre, and the reason it has not done so, is because there isn’t the political will to acknowledge what needs to be done, and do it;
1) Dislocate political influence of elites
2) Reform the methodological mindset/paradigm of Turkish regulatory agencies
Such policy pronouncements to create a financial centre, lack any semblance of credibility, primarily because in the past, political merit alone has been the sole criteria for appointments to key positions in regulatory agencies and stock exchanges, and for example, the location of commodity exchanges. This is a culture where political bureacracy has an unacceptable role, which factor is an impediment to a credible financial, investment, and capital centre.
Failure to address these two issues are the primary underlying factors that have resulted in:
a) A dysfunctional regulatory environment which has driven away capital, job creation, and innovation.
b) The slow and immature growth & development of financial sector products and services, resulting in ‘naive’ and ‘shallow’ results.
Alternatively, until such time as
1) and 2) can be achieved, (and the ‘political will’ most certainly requires a firm hand to manage), one possible solution may be to explore options for ‘an offshore free trade zone’ to co-exist within the Turkish Capital & Investment Markets sector.
Otherwise the results will continue as they have since Tuncay Artuns passing nearly 20 years ago;
1) All significant capital and investment market decisions related to Turkish investors and assets will continue to be centred outside of Turkey.
2) The pace of meaningful innovation in Turkish financial services will continue to be stymied, and growth and development stagnate.
3) The inefficiencies of the present backward financial and capital market sector will continue to hinder the global competitive position of the Turkish economy in general.
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