Turkey’s presidential runoff sparks economic avalanche in the country

Record low for lira
Turkey market
Turkey's sovereign dollar bonds and equities have taken a hit

As Turkey’s presidential race heads to a runoff with incumbent Recep Tayyip Erdogan leading his opposition rival, Turkey’s sovereign dollar bonds, and equities have taken a hit.

The cost of insuring exposure to the country’s debt has spiked, with markets gauging potential fallout from a possible continuation of Erdogan’s unorthodox policies, including combating high inflation with low-interest rates.

Last week, the main banking stock index rose 26%, the largest weekly gain since late 2002, but it tumbled 9.6% in the past two days.

Read more: Turkey’s inflation eases for the sixth consecutive month

The Istanbul bourse benchmark fell 6.1% on the same day, its largest daily percentage drop since early February.

The Turkish Lira posted its largest percentage drop in over six months to end at 19.7 per dollar, a closing record low, not far from the record intraday low of 19.8 hit in March.

The Turkey credit default swap spread jumped 141 basis points (bps) to 634 bps, the highest since November 2022, according to S&P Global Market Intelligence.

Some of Turkey’s dollar-denominated sovereign bonds fell by more than 7 cents.

JPMorgan had forecast that the lira, which has weakened 5% since the start of the year, could reach 24-25 to the dollar.

Goldman Sachs calculations showed the market was pricing the Lira to weaken by 50% in the next twelve months.

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