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Clearing and Settlement Updates

Turkey is set to join one of Europe’s largest securities depositories, allowing investors to settle transactions in its government bonds as it tries to attract more international capital at a time when foreign investments have reached an all time high.

After about eight years of discussions, the government reached an agreement with Euroclear, the Belgian settlement house widely used by international investors to finalize their transactions and protect collateral on their behalf.

The Brussels group holds more than € 30 billion in assets in custody on behalf of banks, asset managers and pension funds, and settled transactions equivalent to € 837 billion last year.

Stephan Pouyat, Euroclear’s head of capital markets, said the deal would open up Turkey’s debt to cautious investors such as sovereign wealth funds and pension funds, some of whom only invest in markets that have an agreement with them. the custodian.

“Those who are in our ecosystem and have a strategic intention to invest in Turkey, they will feel much more comfortable now,” he said.

The deal comes as many investors are avoiding Turkey because they are wary of the country’s economic management under President Recep Tayyip Erdogan.

Non-resident holdings of lira-denominated government bonds fell to just $ 7.1 billion at the end of May, according to central bank data – the lowest level since the record began in 2012. Interest 10 months drive down rates by Turkey’s central bank has also proven to be a deterrent.

At the same time, investors have been alarmed by the measures which, according to the Turkish authorities, aim to prevent “manipulative” behavior in the country’s markets.

In May, Turkey briefly frozen a trio of major international banks stepped out of its currency market, as it stepped up efforts to stop a wave of selling that sent the pound down to an all-time high. Regulators have made it more difficult for portfolio managers to bet against the lira, by limiting the supply of the Turkish currency to most foreign financial institutions.

“Turkish monetary policy is unsustainable in the long term and we believe there is a growing risk of capital controls,” said Viktor Szabo, fund manager at Aberdeen Standard Investments. “We think it’s better not to have a position in Turkey at all.” The country’s declining presence in stock and bond indices also makes it easier for international investors to avoid, he noted.

Charles Robertson, chief economist at Renaissance Capital in London, said Turkey had become unnecessary for many fund managers. “I just find it easier to encourage investors to look almost anywhere else,” he said.

A person familiar with the government’s negotiations with Euroclear acknowledged that Turkey was going through a “difficult period” in terms of investor sentiment, but said the deal with Euroclear was “huge” for the country.

“It sounds like a technical detail, but it’s really important,” the person said. “I know the market is not doing well at the moment. . . but things change very quickly. Now that we have the infrastructure, they will eventually come.

In a statement, Finance Minister Berat Albayrak said the ability to “tap into the liquidity provided by international investors through Euroclear is important for the continued development of our local debt markets”.

Additional reporting by Adam Samson in London


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