Turkey asks local banks to buy its bonds; lenders want 10-year paper -sources

ANKARA, May 28 (Reuters) – Turkey’s Treasury has told the country’s top banks it expects them to buy more lira-denominated bonds, prompting bankers to ask the government to issue more longer-term debt, two bankers told Reuters on Tuesday.

Turkish borrowing costs have jumped after a two-month selloff in the lira, triggered by worries over possible U.S. sanctions, election uncertainty, depleted central bank reserves, and a trend of Turks stockpiling foreign currencies.

The effort to shore up demand for bonds comes as foreigners, already wary of investing in Turkey after a currency crisis last year led to recession, retreat further from the market.

At a meeting last week, Treasury officials told bankers from Turkey’s 12 top lenders that it expects them to show more interest in purchasing government bonds, the two bankers said on condition of anonymity because the meeting was private.

“This is because of the fall in foreign investor interest and rise in borrowing needs,” one of the bankers said.

In response, bankers requested the sale of benchmark 10-year bonds, seen as having the potential for higher returns. The Treasury has not yet responded, the two told Reuters.

The Treasury did not immediately respond to a Reuters request for comment.

The Treasury last issued a 10-year benchmark Turkish bond in July 2018. A published schedule suggests it won’t issue another until August at the earliest.

Foreign holdings of Turkish government bonds accounted for 11.5% of the total in mid-May, according to the latest central bank data. Investors abroad held 15.3% of the bonds in February, and 26% at the end of 2013.

As borrowing costs have risen, the Treasury has increasingly relied on short-term floating-rate borrowing.

The average weighed cost of fixed-rate lira bonds rose to 18.9% in the first quarter, from 12.8% in January last year. In roughly the same time frame the average weighed maturity of borrowing declined to 30.2 months, from 59.3 months.

The government has taken several steps to support the lira, which has fallen 14% against the U.S. dollar this year after shedding nearly 30% last year, including large-scale market interventions and adjustments to forex reserve requirements.

Turkey’s new retirement-fund guidelines, announced on Monday, are expected to direct some 2.5 billion lira ($413 million) towards domestic government bonds.

The first banker said lenders did not view the Treasury’s request as “pressure” but rather that the Treasury was trying to lessen the impact of the waning foreign investor interest in lira-denominated assets.

“It would not be wrong to say that the steps taken these days to support the government bond market are aimed at the same goal (as the retirement-fund guidelines),” the banker said. (Writing by Ezgi Erkoyun; Editing by Jonathan Spicer and Kirsten Donovan)

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