Positive rating expected in bond giant that started investing in TL bonds

Global bond giant Pimco, which started investing in Turkish lira bonds again in the second half of 2023, stated that Turkey is on track to achieve an investment grade credit rating. Pimco, one of the world's largest bond fund managers, has been investing in TL-denominated bonds since the second half of last year, partly due to the sudden change in economic policy made by President Recep Tayyip Erdoğan after he won the general elections in May, and also has a positive expectation regarding Turkey's credit rating. According to the Financial Times, Pramol Dhawan, who heads Pimco's emerging markets team, said, "Interest rates have increased significantly, fiscal policy has tightened. Authorities continue to ease unsustainable programs. The program encourages individual savers to invest in TL and move away from the US dollar. All of these efforts are working." Dhawan added that Pimco is "very constructive" about domestic Turkish assets. Dhawan said that if everything goes according to plan, Turkey could achieve an investment grade country rating within the next five years. Turkey lost its investable country status in 2016. Recently, credit rating agencies have taken positive steps regarding the outlook for its credit rating. Last Friday, Moody’s raised Turkey’s outlook to positive and announced that it may soon raise its B3 rating. The agency’s assessment evaluated that “signs that inflation dynamics are beginning to change indicate that monetary policy is regaining its credibility and effectiveness.” Dhawan said, “Turkey is likely to once again attract foreign capital, helping to stabilize the lira, a necessary precondition for reducing inflation.” TCMB Governor Erkan meets with foreign investors in New York Meeting with investors at an event organized by JPMorgan in New York last week, Central Bank of the Republic of Turkey Governor Hafize Gaye Erkan reiterated her commitment to keeping monetary policy as tight as necessary to ensure price stability. A source who attended last week’s event told the Financial Times that Erkan and Treasury and Finance Minister Mehmet Şimşek “gave a very convincing and encouraging update on the impact of reforms and future targets.” Still, many investors remain cautious about Turkey, noting that Erdogan has made several abrupt economic policy changes in the past, and has fired central bank governors for raising interest rates. Local elections in March are seen as a key test of whether Turkey’s leader, who has been in power for the past two decades, will stick to his new program. “Investors have been watching Turkey’s economic policy closely because of the recent change of central bank governors. But right now, the market is optimistic about Turkey’s commitment to the adjustment process,” Dhawan added.