Turkiye

Turkish Bonds Outperform Bitcoin, Set to Remain a Key Investment Alternative in 2025

In a recent column titled “Turkish Bonds Outpace Bitcoin,” Oksijen newspaper writer Guzem Yilmaz Ertem highlights the remarkable performance of Turkish bonds, which have outperformed even Bitcoin over the past month. Turkish bonds are expected to remain a strong alternative to money market funds throughout 2025.

Turkish Bonds Rally in 2025
The global uncertainty sparked by Trump’s policies has driven investors toward a mix of cryptocurrencies, commodities, and Turkish money market funds or deposits. However, a long-anticipated rally in the Turkish bond market that began in December 2024 has continued unabated.

Since December 24, when the minimum wage increase was announced, the bond rally has gained momentum. For instance, the Turkish Treasury bond maturing on August 12, 2026, delivered an 8% return to investors within just 28 days—comprising 3% interest and 5% capital gains. This return surpasses Bitcoin’s 5% gain during the same period (December 24–January 21).

Foreign investors, who have poured $376 million into Turkish bonds since December 24, anticipate that Turkey’s disinflation program will reduce inflation to 25–30% by the end of 2025. They also expect the Central Bank of Turkey (CBRT) to lower its policy rate from the current 47.5% to the 30–32.5% range. In this environment of falling interest rates, bond yields are likely to decline, increasing bond prices and creating significant opportunities for capital gains.

Key Drivers of the Bond Rally
Foreign investors were drawn to the Turkish bond market not only because the 30% minimum wage increase aligned with the year-end inflation expectation of 26%. Other factors included:

  • The CBRT’s first interest rate cut on December 26.
  • Lower-than-expected inflation figures (1.03% for December compared to a 1.5% forecast) announced on January 3.
  • Treasury and Finance Minister Mehmet Simsek boosting investor confidence during meetings in London on January 16.

With limited alternatives in global markets, foreign investors are increasingly turning to Turkish bonds. In economies where the central bank’s policy rate significantly exceeds the country’s expected inflation rate, there is greater potential for interest rate reductions. In Turkey’s case, the CBRT rate is 47.5%, with a 16-point gap above the average inflation expectation, making Turkish bonds an attractive investment. If credit rating upgrades and fiscal discipline further support the market, Turkish bonds could continue to make headlines throughout 2025.

Money Market Funds vs. Debt Instrument Funds
Money market funds, which have exceeded 2 trillion TRY and now account for 12% of total Turkish lira deposits, are expected to remain attractive in the first quarter of 2025. Even if the CBRT continues cutting interest rates, its emphasis on positive real yields suggests ongoing support for deposits.

However, the 10% bond purchase requirement for money market and liquid funds introduced in the portfolio management sector is driving interest in debt instrument funds. Investors in these funds can benefit from both interest income and capital gains from rising bond prices. Despite a 10% withholding tax, debt instrument funds have significantly outperformed money market funds in the past month, offering returns of 6–7% compared to the latter’s 3.5–4%. This trend is likely to strengthen throughout the year, particularly in the second quarter.

Global Markets and the Trump Effect
Donald Trump’s return to office has stirred uncertainty in global markets. Concerns include higher tariffs on Chinese imports, potential inflation in the U.S. due to rising import costs, and the Federal Reserve’s challenge in reducing interest rates amid inflationary pressures. These factors have unsettled markets, including cryptocurrencies, where rising U.S. bond yields are causing anxiety.

Where Is Money Flowing in 2025?
Market trends in 2025 reflect geopolitical and economic shifts. The Russian ruble (+12%) and Brazilian real (+2.3%) have been the top-performing currencies year-to-date. Swedish OMX stocks, benefiting from eased tensions between Russia and Sweden, lead stock market gains, while Brazilian and Swedish bonds top sovereign bond performance. Commodities like oil and aluminum are also on the rise.

Amid these developments, Turkish bonds have delivered a dollar-based return of 7%, underscoring their attractiveness. As political developments and agreements shape financial markets, close attention to global policies will be critical throughout the first quarter of 2025.

Source: Patronlar Dünyası/ Prepared by: İlayda Gök

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