Cablegate: Turkish Economy: Treasury Views of Domestic Debt

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A

Sensitive but unclassified. Not for internet distribution.

Good Demand in February 3 Auction

1. (U) On January 3, Turkish Treasury auctioned a
three-month T-bill to strong demand, selling TL 955 trillion
(on total bids of TL 1.8 quadrillion) at the annually
compounded rate of 47 percent. Note: This was a quarterly
"reference rate auction," used to determine the interest
rates for quarterly coupons on Treasury's floating rate
notes. The amount sold at such auctions is fixed at 15
percent of the related month's domestic debt redemptions, and
the rates are generally well under the prevailing market
rates on longer term bills. End Note.

Higher than Expected January Inflation -
But Likely Limited Effect on Feb 4 Auctions

2. (U) On February 3, the State Statistics Institute
released January inflation: CPI came in slightly under
market expectations at 2.6 percent; but WPI was much higher
at 5.6 percent. Istanbul market analyst Murat Ucer
attributes three factors to the WPI rate: the usual
mid-winter jump in agricultural prices; a long-delayed rise
in state-controlled prices, especially in energy; and
exchange rate pass-through, given the lira's 6 percent
depreciation in January.

3. (SBU) Comment: Several market participants told us they
don't believe the financial markets will react strongly to
the January inflation results. JP Morgan/Chase treasurer
Sinan Gumisdis sees a limited effect on tomorrow's auctions -
i.e., 58 percent annually compounded rather than 57 percent.
Our contacts believe the February 4 auctions will find
sufficient demand.

Treasury: To Continue Debt Roll-overs
into March, GOT Needs to Reduce Uncertainties

4. (SBU) Treasury Deputy DG for Public Finance Volkan Taski
was fairly confident Feb. 3 about Treasury's ability to
roll-over the debt this week. Treasury plans to auction a
five-month bill and one-year bond on February 4, and targets
a total of TL 4 quadrillion (about $2.4 billion). Taskin
told us two public institutions (the Unemployment Fund and
the Central Bank's Employee Pension Fund) have already agreed
to roll-over their debt, adding up to TL 1 quad, with the
other TL 3 quad to come from the market.

5. (SBU) Taskin told us Treasury's main focus is to
maintain strong demand, rather than to keep rates low, in the
current climate of market uncertainty. T-bill investments at
57-58 percent give a higher yield than the overnight money
market (about 54 percent in annual compounded terms).
Nevertheless, there is now about TL 11 quadrillion in
liquidity sitting in the lira overnight market, Taskin
continued, a testament to investors' concerns about the
maturity risks of holding T-bills. A decrease in
uncertainty will bring some of this overnight liquidity in to
the T-bill market, he believes.

6. (SBU) A decrease in uncertainty would also unlock some
additional foreign demand. There is limited foreign interest
at present, mainly hedge funds attracted by the Turkish
T-bills nearly 30 percent real rate of return. Taskin's
figures show that in January only about TL 2.4 quad or 5.5
percent of the TL 42 quad in marketable domestic debt stock
was held by foreign investors.

7. (SBU) Looking to March, Taskin sees two big domestic debt
redemption dates: March 5 (TL 3.9 quad or $2.4 billion to
the market); and March 19 (TL 4.0 quad). To maintain the
current generally positive market sentiment into March,
Taskin believes the GOT needs to clear up relations with the
IMF. Investors have largely priced in Turkey's cooperation
with the U.S. on Iraq, per Taskin.

© Scoop Media

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