* Lira firms, bond yields dip, shares higher
* Hopes of second investment grade boosted
* Tekstilbank surges 23 percent on sale prospects
(Adds Simsek quote, updates figures)
By Daren Butler
ISTANBUL, March 28 The Turkish lira gained and
bond yields dipped on Thursday after Standard & Poor's raised
Turkey's credit rating to within a notch of investment grade,
while the finance minister said Turkey deserved a higher rating.
S&P cited a rebalancing economy and progress in a peace
process with Kurdish militants, but the positive mood was
clouded by negative sentiment in Europe due to concerns about a
potential run on Cyprus's banks.
"We believe we deserve a higher rating ... if you look at
Turkey's CDS spreads and Turkish bond spreads, Turkey is rated
significantly higher than what the ratings agencies suggest,"
Finance Minister Mehmet Simsek told reporters in London.
Turkey's five-year credit default swaps (CDS), used to
protect against default, are quoted at around 145 basis points
(bps), according to Markit, compared with 165 for BBB-rated
Russia and 220 for Romania, which is also rated BB+ by S&P.
Turkish debt spreads are at 228 bps over U.S. Treasuries on
the JP Morgan EMBI Global index, only slightly wider
than higher-rated Russia's 208 and narrower than Romania's 282
The lira firmed to 1.8105 to the dollar by 1530
GMT from 1.82 on Wednesday. Against its euro-dollar basket
, it firmed to 2.0670 from Wednesday's 2.0711.
Turkey's emerging economy has grown robustly for most of the
period since the 2008 financial crisis, in stark contrast to
many of its European trading partners, but is at risk from the
unrest in neighbouring Syria and elsewhere in the Middle East as
well as from its need to import almost all the oil it uses.
It has made steady progress on its credit rating and
analysts speculated that the S&P move increased the chances of
fellow agency Moody's, which has been more positive on Turkey,
raising it to investment grade.
Fitch Ratings has already done so and the country needs a
second such rating to join benchmark investment grade bond
indexes, allowing many more funds to invest in the country.
"If Moody's is also inspired by the new Kurdish initiative,
then the next step would be raising Turkey to investment grade,"
wrote Tera Brokers Executive Vice-President Ayse Colak.
"This is the development the market is betting on for the
last few months and we think Turkey will continue to decouple
due to this expectation," she said.
The Kurdistan Workers Party (PKK) militant group declared a
ceasefire with Turkey on Saturday after the jailed PKK leader
ordered a halt to its decades-long insurgency.
Bond yields, which on Wednesday touched a 2013 high and
eased after the central bank signalled it would keep liquidity
tight in coming months, fell further after S&P's move.
The benchmark two-year bond yield fell to
6.34 percent from 6.41 percent on Wednesday.
Turkey's central bank appears to be moving away from its
focus on protecting the economy against a hot money-fuelled boom
in the lira and credit, hunkering down instead for the threat of
falling capital inflows if the global mood worsens.
It warned that the current account deficit, Turkey's main
economic weakness, was likely to widen in the short term as
domestic demand picks up although it said its policy framework
would limit further deterioration beyond that.
"Arguably the chances of Turkey achieving the much desired
second investment grade rating have increased," Finansbank said
in a note, pointing to the current account as the main obstacle.
"Given the agencies' long held strong views about the risks
posed by a large current account deficit, it is difficult to see
them upgrading Turkey when the deficit is worsening," it added.
Istanbul's main share index rose 1.26 percent to
85,253 points, outperforming a 0.06 percent fall in the global
emerging markets index.
Tekstilbank surged 23 percent after its parent
GSD Holding, up 22 percent, said it was looking into
the lender's possible sale.
(Additional reporting by Carolyn Cohn and Lorraine Turner in
London, Editing by Nick Tattersall and Stephen Nisbet)