The cost of insuring Turkey’s bonds against default sunk after President Recep Tayyip Erdogan agreed to stop blocking Sweden’s bid to join the NATO military alliance, reducing geopolitical tensions weighing on the country.
(Bloomberg) — The cost of insuring Turkey’s bonds against default sunk after President Recep Tayyip Erdogan agreed to stop blocking Sweden’s bid to join the NATO military alliance, reducing geopolitical tensions weighing on the country.
Credit default swaps protecting from non-payment on Turkish bonds for five years fell 17 basis points to 469 points as of 1:43 p.m. in Istanbul, on course for the lowest close in 20 months and down from as high as 700 basis points during Erdogan’s reelection in May. The country’s dollar bonds and local stocks rallied while the lira extended its slide.
Geopolitical risks have helped sap demand for Turkish assets as ties between Erdogan and key western allies had been strained by Istanbul’s blockade of Sweden’s membership in NATO and its purchase of a Russian missile system. Since the election, however, Erdogan has been gradually warming relations and rolling back unorthodox economic policies in hopes of luring back foreign capital to rejuvenate the Turkish economy.
“It’s viewed as a rapprochement with the West, supporting bets for lower geopolitical risks,” Onur Ilgen, the head of treasury at MUFG Bank Turkey, said about Turkey’s decision to back Sweden’s NATO accession.
Turkey Agrees to Back Sweden’s NATO Bid in Boost to Alliance
In another encouraging sign for investors, Erdogan is due to meet US President Joe Biden at a NATO summit in Lithuania in Tuesday, where they’re due to discuss Turkey’s request to purchase F-16 jets.
Turkey’s lira’s traded 0.1% weaker at 26.11 against the dollar, continuing its depreciation since Turkish authorities allowed more currency flexibility in the wake of the ballot, part of its approach of gradually abandoning unorthodox economic policies. The yield on Turkey’s 10-year dollar bond fell 29 basis points to 8.66% while the benchmark Borsa Istanbul 100 Index rose as much as 1.7% before paring gains.
With the country’s foreign currency reserves depleted and with more than $200 billion of debt payments coming due, Erdogan is looking to plug an investment gap. The president will visit United Arab Emirates, Saudi Arabia and Qatar between July 17-19.
Erdogan to Embark on Gulf Tour to Attract Investment to Turkey
Meanwhile, Turkish Treasury & Finance Minister Mehmet Simsek said a rise in central bank reserves in June was “encouraging.”
“The NATO deal, growing reserves, even a gradual shift to orthodox policies and expectations of more money from the Gulf are all aiding the positive sentiment and leading to drop on risk measures,” said Viktor Szabo, an investment director at Abrdn in London.
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