Foreign investors tiptoe back in to Turkey’s domestic bond market

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

International investors are dipping a toe into Turkey’s long-abandoned debt market as sweeping economic reforms and a surge in yields gradually increase the appeal of the country’s bonds. 

Foreign fund managers have bought about $860mn in lira-denominated Turkish government bonds in the second half of this year, the biggest inflows for any half-year period since the start of 2021, according to central bank data.

The trickle of new investments is the latest sign of how the broad economic policy overhaul that began after President Recep Tayyip Erdoğan’s re-election in May has piqued investor interest in Turkish assets, including lira-denominated debt that they have shunned for years. 

“Things are changing quite quickly,” said Paul Greer emerging market debt fund manager at Fidelity International, adding that Turkey’s lira and local currency bonds are “flavour of the month”. 

The more upbeat sentiment comes after Turkey’s new economic management team, which was appointed in June, has abandoned years of unorthodox policies that ignited runaway inflation and other severe imbalances such as a yawning current account deficit. 

The central bank, led by former Goldman Sachs banker Hafize Gaye Erkan, has boosted interest rates six times since the start of June from 8.5 per cent to 40 per cent as it attempts to cool price growth that is still running above 60 per cent. Fiscal policy has also been tightened significantly through tax rises and other measures to cool domestic demand, while the government has allowed the lira to trade more freely.

Carlos Carranza, portfolio manager at Allianz Global Investors, said the new monetary and fiscal policies were sending “positive signals”. He added: “Turkey is fighting inflation, allowing the central bank to be independent and hike rates and working on tackling the fiscal…