Turkish 10-year bond interest rates still far below fair value: JPMorgan
Leading U.S bank JPMorgan has issued a report emphasizing that the Turkish economy is firmly ensnared in the grip of interest rates, drawing attention to the escalating challenges faced by the Turkish economic management.
The report, released by JPMorgan, suggested that despite the recent surge in bond yields, more corrective measures are necessary to stabilize the economy. Prior to the elections, the 10-year Treasury bond interest rate had steadily climbed from 7% to an unprecedented 29%.
However, according to JPMorgan, even this sharp increase in interest rates might not be sufficient to address the economic instability. The report, which was featured in Ekonomim.com, underlined the critical importance of achieving a fair interest rate value of 35.7% for 10-year Turkish Treasury bonds, indicating that JPMorgan intends to closely monitor the situation until this threshold is reached.
Over the past decade, the steady decline in foreign interest in Turkish bonds has been a significant reflection of the economic turmoil. A decade ago, foreign investors held bonds worth $70 billion, but this figure has now plummeted to a mere $1.1 billion. The Turkish economy's troubles have not only pushed foreign investors away, but they have also exposed the consequences of interventions aimed at artificially lowering interest rates to combat the sharp depreciation of the Turkish Lira.
Following the election, the newly appointed economic management team has been gradually lifting regulations that compelled banks to invest in Treasury bonds. However, this move has not yet produced the expected results in terms of increasing bond yields. The market appears to be struggling with a persistent gap between the current interest rates and the desirable fair value, which JPMorgan has highlighted.