By Nevzat Devranoglu
ISTANBUL, Nov 22 (Reuters) - Turkey is likely to make its first attempt next year to sell local currency bonds that mature in more than 10 years' time, bankers say, encouraged by the country's first investment grade credit rating.
Falling inflation and borrowing needs, combined with this month's Fitch ratings upgrade, have raised expectations that the treasury will follow through on its October announcement that it may consider longer-term lira bonds in 2013.
Bankers close to the matter say an initial longer-dated bond issue might be small, with little immediate impact in extending the maturity of the total debt stock. However, the treasury could build on such an issue to gradually increase the maturities of its new bonds from 10 years to 20 years.
Turkey's EU-defined debt stock fell to 32.9 percent of its national output from 74 percent in 2002, mainly due to the tight budget policies it implemented after the country's financial crisis in 2001.
'The treasury has a strong interest in issuing longer-term paper, and extending the maturity, and I also think there is strong investor demand in extending duration, especially with full investment grade looming,' said Timothy Ash, head of emerging markets research at Standard Bank.
Credit ratings agency Fitch upgraded Turkey to investment grade on Nov. 5. However, Moody's kept Turkey's rating at Ba1, one notch below investment grade, on Nov. 20. Standard & Poor's rates it a further notch lower.
Currently, the longest-dated lira-denominated bond matures on Sept. 14, 2022 and was yielding 7.34 percent by 1036 GMT on Tuesday. The treasury issued its first 10-year lira-denominated bond on Jan. 26, 2010.
Turkey may issue longer-term bonds in the first quarter of 2013 because its debt redemptions will be higher in this period, bankers say, giving investors more cash to redeploy.
The Treasury earlier projected total borrowing for 2013 at 150.6 billion lira ($84 billion) from domestic markets against a total debt redemption of 172.1 billion lira.
Bankers expect foreign investors to be more interested in longer-term bonds than local banks. The banks prefer to buy assets which are a closer match to the deposits they collect, whose average maturity is less than 3 months.
The gross debt stock of Turkey's central government rose to 536.8 billion lira at the end of October, from 518.3 billion lira at the end of 2011.
'The treasury may issue bonds having longer terms than 10 years next year ... It wouldn't extend the average maturity of the treasury's debt stock. It would be a prestigious move, though,' said Ali Ihsan Gelberi, director of economic research at Garanti Bank.
He said inflation would need to level off at around 3-4 percent to enable the country to extend maturities significantly. Yields on longer-term bonds tend to be more sensitive to inflation expectations.
The weighted average maturity of Turkey's domestic borrowing rose to 60.5 months in the first seven months of 2012, from 44.7 months at end-2011.
Annual inflation in Turkey fell to 7.8 percent in October, from 9.2 percent a month earlier, still far above the central bank's year-end target of five percent.
($1 = 1.8023 Turkish liras)
(Writing by Seltem Iyigun; Editing by Ruth Pitchford) Keywords: TURKEY TREASURY/BORROWING
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