Analysis on Turkey’s Fixed Income: Now or Never
Christian Wietoska, Head of Middle East and Eastern Europe Research at Deutsche Bank, along with Economist Yiğit Onay and Researcher Ankit Jain, noted in their research report titled “Turkey’s Fixed Income: Now or Never” that since the interest rate hike in March, the Turkish lira has emerged as “the best performing global currency by a wide margin.”
The report highlighted that short-term bonds have experienced a strong rally so far, stating, “We believe this is just the beginning and that local bonds still offer extremely attractive entry levels.”
Following an inflation peak of 75.5% in May, the report indicated expectations of strong disinflation in the coming months, forecasting that annual inflation could decrease to around 50% by the end of August and 40% by the end of the year.
It was also noted that weakening domestic demand, tighter credit conditions resulting from interest rate hikes, and a more stable currency support a downward trend in inflation.
The report asserted that the real appreciation of the Turkish lira and the expected slowdown in domestic demand would contribute to a decline in the main inflation trend. It concluded that “a sharp decrease in headline inflation to around 50% in August could create a more favorable environment to anchor inflation expectations for households and businesses.”
Furthermore, it suggested that with low domestic supply of assets during the summer and still low positioning levels, improving inflation expectations would make bond yields more attractive, and recommended investing in Turkish lira bonds.
Last week, Swiss asset management company Pictet Asset Management also announced that it had begun purchasing long-term lira bonds in response to increasing investor support for Turkish bonds and the lira.
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Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
