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Yields on Turkey USD Bonds Fall After Veto on Sweden NATO Entry Dropped

TURKEY
Yields on Turkey USD bonds have fallen further after Erdogan said late yesterday that Turkey is dropping its veto against Sweden’s NATO bid. Erdogan's Sweden step is the latest in a series of diplomatic manoeuvres that indicate warmer relations between Turkey and the West, on which markets are increasingly sensitive due to the precarious position of FX reserves after the pre-election drawdown. Perhaps most notably, Erdogan has negotiated a pledge from NATO for no restrictions on defence trade, as well as establishing a joint Swedish/Turkish trade and economy committee.
  • Yields on 3Ys are down 42.7bps at the time of typing while that on 10Ys have fallen 28.5bps and last deal at 8.576, the lowest since early June. Similar optimism is seen in local equities, with the Borsa Istanbul Index up 0.90% and marginally outperforming its European counterparts.
  • Earlier today, Finance Minister Simsek said that the increase in Central Bank reserves was “encouraging” and added that efforts to provide additional reserves will continue rapidly. He said central bank reserves stood at $108.6b as of June 30, up from $98.5b on May 26.
  • On the other hand, the preliminary reading of Q2 current account data showed a larger-than-expected deficit this morning. Nevertheless, Vice President Yilmaz said that while the current account shortfall is expected to exceed the Medium-Term Program target of 2.5% of GDP, the deficit is expected to be “considerably below” its current level by year end, thanks to an improvement in 2H.
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