DETERMINING THE COUNTRY-SPECIFIC VARIABLES AFFECTING THE MARKET VALUE OF TURKISH EUROBONDS: NARDL APPROACH

Abstract

This study aims to determine the country-specific variables influencing the market value of eurobonds issued by the Republic of Turkey Ministry of Treasury and Finance. The research covers the period from January 2012 to June 2020. For the study, the 102-month time series are analyzed with the NARDL model. Parallel to the model, independent variables are decomposed into positive and negative shocks, and these components are added to the model. Thus, the existence of a significant asymmetric cointegration relationship is investigated. The results of the bounds test prove that there is a long-term cointegrated relationship among variables. According to the findings, the negative and positive shocks of credit default swap in both the short and long term significantly affect the Turkish eurobond market value. However, the negative shock has a more significant impact. The negative shock of total international reserves in the short term and the negative shock of the current account in the long term significantly affect the Turkish eurobond market value. On the other hand, low bond issuance costs during low CDS periods will encourage the Turkish government to issue eurobonds. In that case, the market value of the Turkish eurobond will rise. Contrary to the significant and positive relationship between inflation and eurobond return in the literature, the Consumer Price Index does not significantly affect Turkey’s eurobond prices. Similarly, although it is argued that the budget balance significantly affects the yields of government bonds, the findings of the study show otherwise; it does not have a significant impact on eurobond market value.