LONDON: Investors who bought into Turkey's opportunistic $2.25 billion bond sale last week have been left baffled and battling buyers remorse after the sudden sacking of the country's central bank chief over the weekend.
Although the Turkish central bank has been under heavy political pressure for some time, President Tayyip Erdogan's decision to replace Governor Murat Cetinkaya with his deputy Murat Uysal on Saturday caught many off guard.
The lira had only just stabilised after more than a year of turmoil and cooling inflation had given the central bank legitimate leeway to start cutting its 24% borrowing rates later this month.
Erdogan, a self-styled enemy of interest rates, has long supported cuts but the apparent loss of patience with Cetinkaya sent the lira down as much as 2% on Monday and sank the new bonds by around 1 cent.
"I wouldn't say it's a complete shock but it is definitely a surprise because it looked like the central bank was already on its way to cutting rates," Pictet Asset Management portfolio manager Guido Chamorro, who invested in the bond issue, said of Cetinkaya's sacking.
"This is a negative step in my view for the credit, so if I would have seen this coming then I wouldn't be increasing positioning."
BNP Paribas, Citigroup and HSBC who helped sell last week's bond all declined to comment, although one of the bankers involved said on the condition of anonymity that Cetinkaya's sacking had been a "total surprise".
All the investors who spoke to Reuters for this story also said there had been no indication during the process that his departure had been on the cards.
"The question is 'why now?," said Sergey Dergachev, a manager of emerging market debt at Germany-based Union Investment, which also bought into last week's bond.
While he didn't think there was any deliberate sequencing of the sale and Cetinkaya's sacking, it simply fuelled uncertainty again.
"Of course it is not good in terms of the timing of this dismissal, but investors like ourselves and many others as well are more asking the question 'what will this mean for CBRT (Turkish central bank) policy'," he explained.
"What will this mean for Turkey's institutions (in general), might there be some re-shuffle of key posts, and will Erdogan further tighten his grip."
BIG BLOW
That upheaval was already continuing on Monday as former deputy prime minister Ali Babacan resigned from Erdogan's AK Party citing "deep differences" over the party's direction.
"Likely the firing of the central bank chief was the last straw," BlueBay Asset Management's Tim Ash said, adding the departure of a respected official like Babacan was "a big blow to Erdogan" which could also see Babacan set up a rival party.
Monday's falls in the lira and the governments bonds were the sharpest in months, but by the standards of the last year-and-a-half they were still relatively measured and also came after hefty relief rally over the last couples of months.
Pictet's Chamorro put it down to the fact the central bank had been expected to cut rates anyway this month, so while new governor Uysal might may accelerate the process, policy wouldn't be that different overall.
It also comes with top central banks like the US Federal Reserve and European Central Bank limbering up to cut their rates, and under varying degrees of political pressure too, which is a major difference to last year.
"There was no indication that this (sacking) was on the cards, but if you look at the US the situation (with President Donald Trump urging the Fed to cut rates), is not too dissimilar now."