Falling CDS, easing inflation boost foreign interest in Turkish lira assets

By Ali Canberk Ozbugutu and Emir Yildirim

ISTANBUL (AA) - Türkiye’s ongoing disinflation process and economic policies that have pushed the country’s credit default swap lower are increasing foreign investor interest in Turkish lira assets, analysts say.

Despite persistent challenges in the global economy, Türkiye continues its disinflation efforts, which are expected to further slow inflation in the coming period. A weak US dollar and declining oil prices are currently supporting the process, with their positive impact expected to become more visible in the short term.

According to the Turkish Central Bank’s monthly market survey, 72 participants from the real and financial sectors now expect year-end inflation to ease slightly, with the Consumer Price Index forecast revised down to 23.23% from 23.35%.

Foreign demand for Turkish lira assets has been rising amid improved regional positioning and declining borrowing costs. Türkiye’s five-year CDS has been on a downward trend since September last year, falling to 204.5 basis points on Jan. 5 -- its lowest level since May 2018. Analysts noted that a limited uptick followed a slight rise in regional geopolitical tensions.

- Foreign investors step up bond and stock buying

Foreign investor purchases in both bond and equity markets have been strong in recent weeks. Non-resident investors, excluding foreign branches of Turkish banks, have been net buyers for 10 consecutive weeks.

In the week of Jan. 9, non-residents bought $766 million worth of bonds and $138.5 million in stocks. Including the overseas branches of Turkish banks, foreign investors made their largest purchases in the government debt securities market since the week of Aug. 15, 2025.

As a result, the stock of shares held by non-residents rose to $36.3 billion in the week of Jan. 9, 2026, while the value of government debt securities held by foreigners increased from $18.4 billion to $19.2 billion.

Analysts said these developments have reinforced expectations that inflation will continue to slow, supporting the positive trend in the bond market and giving the Turkish Central Bank more room to ease monetary policy.

The benchmark July 14, 2027 bond, traded on the Istanbul Stock Exchange Bond and Bill Market, extended its downward yield trend that began in November 2025, falling to 35.98% -- its lowest level in nearly 26 months.

Economists’ expectations have also shifted. Anadolu’s survey ahead of the Turkish Central Bank’s Monetary Policy Committee meeting on Jan. 22 showed that three of 46 respondents expect a 100-basis-point rate cut, while 42 forecast a 150-basis-point cut. The median expectation points to a 150-basis-point reduction, bringing the policy rate to 36.5%.

Globally, the US Federal Reserve is still expected to continue cutting rates this year, supporting stock markets in developed economies. Analysts say emerging markets could attract even stronger demand, offering relatively higher returns under current conditions.

They added that the rally on the Istanbul Stock Exchange could continue as investors shift toward riskier assets alongside domestic rate cuts, and that interest in Turkish lira assets is likely to keep rising if credit rating agencies further upgrade Türkiye’s credit rating or outlook.