Inflation in Türkiye returned to its upward trajectory last October, exceeding previous expectations under pressure from rising energy and food prices and geopolitical fluctuations.
Annual inflation in consumer prices in October recorded a monthly increase of 2.58 percent, and annual inflation rose to 29.77 percent, according to official figures announced by the Turkish Statistical Institute on Tuesday.
The producer price index rose 27.41 percent year on year in October.
Previous experts had expected consumer prices to rise by an average of 2.20 percent in October on a monthly basis, and annual inflation to decline to 29.28 percent.
Expert estimates of the monthly increase in October ranged between 1.25 and 2.70 percent, with annual inflation declining by 0.45 percent.
Economists' average inflation expectations by the end of this year reached 29.64 percent.
Annual inflation in consumer prices in Turkey last September recorded its largest decline in about 5 years, recording 29.73 percent, falling to less than 30 percent since November 2021, while monthly inflation recorded an increase of 1.48 percent, unchanged from the previous August. Annual inflation was 31.51 percent in August.
Fundamental factors
Turkish Statistical Institute data indicated that among the three main spending groups with the greatest weight, the prices of food and non-alcoholic beverages rose by 27.73 percent, transportation by 36.39 percent, and housing, water, electricity, gas and other fuels by 40.24 percent on an annual basis.
The contribution of these groups to the annual change was 6.81 percent for food and non-alcoholic beverages, 6.10 percent for transportation, and 4.71 percent for housing, water, electricity, gas, and other fuels.
On a monthly basis, there was an increase of 3.50 percent in food and non-alcoholic beverages, 2.02 percent in transportation, and 2.84 percent in housing, water, electricity, gas, and other types of fuel. The contribution of these groups to the monthly change was 0.84 percent for food and non-alcoholic beverages, 0.36 percent for transportation, and 0.34 percent for housing.
Of the 174 subcategories included in the index, as of October, 29 categories showed a decrease in their index, while 11 categories saw no change, and 134 categories saw an increase.
Based on inflation data in October, the annual increase in rents for the current month of October was set at 31.23 percent for homes and workplaces.
Contrary to the official figures issued by the Turkish Statistical Institute, the Inflation Research Group (INAG), composed of economists, academics and independent experts, announced that monthly inflation in October rose by 2.68 percent, and annual inflation to 45.12 percent.
European bond markets are facing increasing pressure as major US technology companies turn to borrowing from investors in Europe to finance their massive investments in artificial intelligence infrastructure, in a move that will increase the supply of corporate debt and raise borrowing costs for other companies and governments.
Although debt issuance related to the technology sector in Europe is still much lower than its counterpart in the United States, investors expect the pace of issuance to accelerate in the coming months, across the euro, British pound, and Swiss franc markets, according to Reuters.
On Monday, Alphabet launched its second euro-denominated bond issuance this year, after raising 9 billion euros ($10 billion) last May. Other giant technology companies, known as “hyperscalers”, such as “Meta”, “Amazon” and “Microsoft”, are expected to follow suit, as their financing needs increase to expand artificial intelligence infrastructure investments.
Marion Le Mordique, head of investment in fixed income instruments at Fidelity International, said that Europe was lagging behind the United States in debt issuance in the technology sector, but activity is accelerating. The volume of anticipated issuances was estimated at between 40 and 60 billion euros.
Borrowing in foreign currencies also allows companies to hedge the risks of exchange rate fluctuations associated with their global assets, as well as benefit from relatively lower borrowing costs in markets such as Europe.
Deep European capital markets provide an attractive source of financing, but increased issuance, while expanding the base of high-credit-rated bonds available to investors, may lead to higher financing costs for European companies and governments, which already face concerns about public finances and inflation.
Technological borrowing accelerates
Data from the London Stock Exchange Group (LSEG) showed that debt issuances related to the technology sector in the United States exceeded $250 billion since the beginning of the year, an increase of 81 percent, compared to the same period last year. In contrast, issuances in Europe amounted to $39.3 billion, an increase of about 5 percent year-on-year.
Despite concerns about the ability of technology companies' huge investments in artificial intelligence to achieve rapid returns - concerns that contributed to a selling wave that wiped out more than two trillion dollars from the market value of the Nasdaq index, which is heavy on technology stocks over the past month - analysts and investors expect the strength of bond issuances to continue.
BNP Paribas expects the net supply of investment-grade corporate bonds denominated in euros to rise by 83 percent to 192 billion euros ($214 billion) in 2027, compared to about 105 billion euros during the current year.
Julio Baratta, global co-head of investment-grade corporate finance at BNP Paribas, said that issuances by American companies in foreign markets, known as “Reverse Yankee,” may constitute between 80 and 90 billion euros of the total supply expected in 2027, with giant technology companies accounting for the bulk of it.
He added that the entry of any of these companies into the market with a financing deal worth billions of dollars executed within one day attracts the attention of investors and affects the market movement.
Huge deals test investors' appetite
The influx of new issuances may lead to a widening of yield spreads on investment-grade corporate bonds, as giant technology companies compete with other borrowers with high credit ratings, from the utilities, telecommunications and automotive sectors, to attract investor demand.
In this context, asset swap spreads on the ICE Index of European investment-grade corporate bonds widened by 11 basis points over the past month, indicating that investors are demanding an additional return in exchange for holding corporate bonds compared to interest rate swaps.
Analysts believe that the increase in supply may prompt issuing companies to offer price premiums to attract sufficient demand for their bonds, which may raise financing costs for other companies.
Investors in European markets are also relatively less experienced in absorbing the large multi-tranche bond deals that have become common in the United States. Jonathan Owen, a member of the multi-sector portfolio management team at Twenty Four Asset Management, said that such deals may temporarily lead to a widening of the yield spreads on investment-grade European corporate bonds.
Although strong demand from investors has absorbed the issuances so far, a series of huge deals worth between 10 and 20 billion euros may test the market's ability to absorb the supply, especially if the issuances of several companies coincide at the same time.
Faced with volatility in long-term yields and expectations of increased issuance, some European companies have begun to favor short-term bonds at the expense of longer maturities.
Portfolio Manager at Vontobel, Christian Hantel, said that companies not operating in the giant technology sector are currently avoiding long-term issues, noting that some companies that used to issue ten-year bonds are now turning to terms ranging between five and seven years.
The repercussions of increased borrowing are not limited to the corporate bond market, as they may extend to European government bonds, which in turn face pressures resulting from investors’ concerns about general financial conditions and inflation.
European Central Bank President Christine Lagarde said last week that debt issuances by giant technology companies contributed to a rise in government bond yields.
Owen said that investors are increasingly focusing on the size of issues related to artificial intelligence in the long term, and their repercussions on government bond markets, explaining that the debts of giant technology companies have a high credit rating, but they usually provide higher returns than government bonds.
