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Turkey's Latest Attraction – Euro-bonds In Turkish Lira

Investors looking to diversify their portfolio by way of bond trading could also consider investing in bonds of different currencies. Value of currency varies based on the activity in the economy and the market demand. It generally moves closely in line the macro economic environment and hence remains volatile. During the past few years while most of the currencies have depreciated, Turkish Lira (TYR) has remained stable and hence demand for Lira has increased.

Turkish Lira which was the main reason for the collapse of the country's economy in 2001 has come a long way since. The Lira, pegged to a mixture of Euro and US Dollar, was floated freely in the market in 2001. The market reacted sharply to the country's weak position and the currency fell by 25%. Fast forward to 2013, Turkey's Central Bank is doing all it can to stop Lira from appreciating. The tremendous growth of Turkish economy and increased demand for the currency in the market drove the value of the currency. The Turkey's Central Bank has put enough policies in place to avoid too much appreciation of the Lira. However, the dampened growth in the Western Europe has also resulted in increased demand from investors looking to gain exposure to the currency.

Turkish credit market which rallied in 2012 is trying to attract investors by offering Lira-denominated Euro-bonds. Turkey's bond market saw its first Lira Euro-bond issued by the country's third largest bank - Akbank, in January 2013. This issuance marked a new beginning for the credit investors in emerging markets who wanted to gain exposure to the Turkish Lira. The five-year issuance of TRY 1 bn was priced at 7.5% and attracted demand thrice the initial offer. Following Akbank is Garanti Bank, which is offering TRY 750 mn, five year Lira-bonds with a coupon of 7.5%. Other major banks such as Isbank, Yapi Kredi and Finansbank among others, have already obtained approval to issued Lira-denominated bonds during 2013. Issuing Lira-bonds will also help the banks in diversifying their funding base. The low rate of savings in Turkey and declining pace of deposits growth when compared to fast growth of loans leaves banks exploring for alternate ways of funding. Though bonds are costlier compared to deposits, Lira bonds might help the banks in reducing the dependency on the foreign currencies. It is not just the Turkish banks which are looking at raising lira-debt. VTB Group, the largest Russian bank, also issued TRY 300 mn two-year lira-debt. Another Russian bank Sberbank and Germany's Rentenbank are also planning to issue lira-denominated debt.

The increased demand for Lira-denominated bonds has created new investment opportunities to the investors. While investors diversify their portfolio, banks also benefit by raising local currency funds at cheaper rates compared to foreign denominated bonds. However, to better understand the risk related to investing in Lira, it is advised to consult a financial advisor, who will be better equipped to help investors based on their individual wealth management requirements.