Turkiye’s sovereign credit risk at its lowest since May
ISTANBUL: The return of optimism to global markets is lifting one of its most troubled corners – Turkiye.
The nation notorious for responding to elevated inflation with low interest rates was among the worst-hit emerging markets (EMS) after the outbreak of the war in Ukraine.
Now as fears of runaway consumer prices ease around the world, bears are finally loosening their grip on the country.
Turkiye’s sovereign credit risk, which surged to a 19-year high last month, has fallen back to 703 basis points, the lowest since May, after Russia’s cash transfer into a Turkyish subsidiary boosted foreign-currency reserves.
The extra yield investors demand to own Turkyish dollar bonds rather than treasuries has tumbled below 600 basis points for the first time since June.
“I don’t expect Turkiye to run a material risk of a default anytime soon, but at 900 basis points, we were close to an extreme threshold,” said Cristian Maggio, the head of portfolio strategy at TD Securities in London.
The bond-market recovery comes after gains in equities, where the benchmark gauge posted its biggest weekly surge in 21 months.
Bonds are steadying amid data that showed the total amount of foreign currency that companies held in Turkyish banks jumped about Us$5.6bil (Rm25bil) in seven days. The total reserves, including gold, probably rose Us$7.3bil (Rm32.5bil) to Us$108.6bil (Rm484.03bil) last week, Haluk Burumcekci, an independent economist, said in a report.
Meanwhile, Turkiye took a further step toward reducing its dependence on the United States dollar, as it entered an understanding with Russia that allows Turkiye to abandon the greenback for some imports.
Yet, the country’s currency remains in the doldrums. While repeated interventions by state-run banks has steadied the lira after a seven-month slump through July, it continues to trade close to the psychological level of 18 per US dollar.
The currency has lost more than 25% this year and is the worst performer among EM peers.