13-03-2023, 08:46 PM
How is Turkey financing reconstruction after the earthquake?
#Econgram_Turkey
Facts:
1) Last Thursday, Turkey issued government bonds for the first time after the earthquake. The raised $2.25bn will be spent on rebuilding the country.
2) The yield on the newly issued bonds was 9.5%, 5.2 percentage points higher than the rate on US government bonds. In contrast, in January 2023, before the earthquake, it was 6.2 percentage points higher.
Analysis:
1) US government bonds are usually considered riskless assets*. On the contrary, investors require a risk premium on Turkish bonds to compensate for the default risk of the Turkish government. In fact, the unorthodox economic policies* used by President Erdogan raise the default risk in traders’ eyes.
2) The decrease in the spread between Turkish and US bonds from January to March shows that investors started to perceive Turkish bonds as less risky. Traders believe the earthquake crisis will lead to Erdogan losing the elections in May. An opposition government will likely use more orthodox policies to manage the economy. That would decrease the default risk.
#Econgram_Turkey
Facts:
1) Last Thursday, Turkey issued government bonds for the first time after the earthquake. The raised $2.25bn will be spent on rebuilding the country.
2) The yield on the newly issued bonds was 9.5%, 5.2 percentage points higher than the rate on US government bonds. In contrast, in January 2023, before the earthquake, it was 6.2 percentage points higher.
Analysis:
1) US government bonds are usually considered riskless assets*. On the contrary, investors require a risk premium on Turkish bonds to compensate for the default risk of the Turkish government. In fact, the unorthodox economic policies* used by President Erdogan raise the default risk in traders’ eyes.
2) The decrease in the spread between Turkish and US bonds from January to March shows that investors started to perceive Turkish bonds as less risky. Traders believe the earthquake crisis will lead to Erdogan losing the elections in May. An opposition government will likely use more orthodox policies to manage the economy. That would decrease the default risk.