Turkish bears are down amid global rebound and Russian money

The return of optimism on the world markets lifts Turkey.
The nation known for responding to high inflation with low interest rates was among the hardest hit emerging markets after the outbreak of war in Ukraine. Today, as fears of runaway consumer prices ease around the world, the bears are finally loosening their grip on the country.
Turkey’s sovereign credit risk, which hit a 19-year high last month, fell to 703 basis points, the lowest since May, after the transfer of cash from Russia to a Turkish subsidiary swelled foreign currency reserves. The extra yield demanded by investors to hold Turkish dollar bonds rather than Treasuries fell below 600 basis points for the first time since June.
“I don’t expect Turkiye to be at significant default risk anytime soon, but at 900 basis points we were close to an extreme low,” said Cristian Maggio, head of portfolio strategy at TD. Securities in London. “Any substantial decline from current levels is also likely to be unwarranted. So maybe 500 to 700 basis points is a reasonable trading range. »
The bond market rally comes after gains in equities, where the benchmark posted its biggest weekly gain in 21 months. Short-term interest on a US exchange-traded fund buying Istanbul-listed stocks fell to its lowest level in 2014 amid a global rally.
Bonds are stabilizing amid data that shows the total amount of foreign currency companies are holding in Turkish banks jumped by around $5.6 billion in seven days. Total reserves, including gold, likely rose by $7.3 billion to $108.6 billion last week, Haluk Burumcekci, an independent economist, said in a report.
Meanwhile, Turkey has taken a further step towards reducing its dependence on the US dollar, striking an agreement with Russia that allows Turkey to ditch the greenback for some of its imports.
Yet the country’s currency remains in the doldrums. While repeated interventions by state-owned banks have stabilized the lira after a seven-month slump through July, it continues to trade near the psychological level of 18 to the dollar. The currency has lost more than 25% this year and is the worst performer among its emerging market peers.
Consumer price growth in Turkey is at an annual rate of 80% against the central bank’s 5% target. Policymakers kept the benchmark rate at 14% this year, after 500 basis points of cuts in 2021.

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