Credit risk premium hit its lowest level in 2 years

Turkiye’s 5-year credit risk premium (CDS) fell to 367.52 basis points, reaching its lowest level in 2 years.

While the employment increase in the USA, which was below expectations, indicated that the tight labor market in the country was beginning to loosen, the risk appetite in global markets increased with the decline in bond interest rates and the decrease in funding costs, with the expectation that the interest rate increases of the US Federal Reserve (Fed) may have come to an end in asset prices.

The US 10-year bond interest rate decreased by 12 basis points to 4.51%.

Moreover, while the new economic management’s steps to ensure price stability are gradually being implemented in Turkiye, Turkiye’s CDS continues to decline despite ongoing geopolitical risks.

While the Turkish economy’s fight against inflation continues strongly, this situation continues to affect pricing.

After the steps taken, Turkiye’s CDS decreased to 367.52 basis points, reaching the lowest level since September 2021.

While the Central Bank of the Republic of Turkiye (CBRT) increased the policy rate by 500 basis points to 35% in line with expectations last week, it was signaled in the policy text that gradual simplification would continue.

According to the communiqué published in the Official Gazette on the day following the decision, the CBRT introduced steps to increase the share of the Turkish lira (TL) in the banking system, as well as implementation facilities for export credits and companies’ access to credit within the scope of simplification.

On the other hand, it was stated that Treasury and Finance Minister Mehmet Simsek continued to receive positive signals from the meetings with foreign investors.

While Turkiye’s access to external financing continues to increase, Mehmet Simsek, in his speech at the Plan and Budget Commission of the Turkish Grand National Assembly (TBMM), where the 2024 budget of the Ministry of Treasury and Finance is discussed, it was reported that approximately $7.1 billion of external financing was provided for project financing as of October.

Simsek stated that, according to the report shared by the Financial Action Task Force (FATF), Turkiye is compatible with 39 of the 40 FATF standards and said, “Within the scope of technical compliance, the only issue whose preparations are ongoing is the work on crypto assets. Our necessary work in this regard has reached the final stage. We are making efforts to remove our country from the gray list with the effectiveness we will provide in practice.”

Analysts stated that both the clear attitude shown in the fight against inflation and the economic management’s meetings with foreign investors weakened the risk perception regarding Turkiye, and said that this situation can be seen in the movement in CDSs.

Analysts stated that the decline in Turkiye’s credit risk premium is promising these days, when the Israeli-Palestinian conflict continues and there is a risk of the war spreading to larger areas, and said that CBRT President Hafize Gaye Erkan’s statements in yesterday’s Inflation Report presentation also reveal the determination to fight inflation.

In his speech, Erkan said, “We will continue to strengthen monetary tightening until a significant improvement in inflation is achieved.”

Source: Trthaber / Prepared by Irem Yildiz

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