Turkish long bonds present opportunity

Long-End Divergence in Turkish Government Bonds Signals Tactical Opportunity

Summary: Recent pricing in Turkey’s government bond market (DİBS) shows a clear divergence, particularly at the long end of the yield curve. The rise in long-term yields appears largely driven by short-term inflation concerns and is seen as a temporary correction rather than a structural shift. With improving disinflation expectations for March–April, current levels may offer an attractive risk-reward entry point in longer-dated bonds.

Long-Term Yields Rise Sharply on Inflation Jitters

In recent weeks, Turkish government bond markets have displayed notable divergence across maturities.

Since the beginning of the year:

• Long-term yields have risen by as much as 150 basis points.

• 4–5 year maturities have seen only limited movement, with some mild declines.

This suggests that deteriorating short-term inflation expectations have weighed disproportionately on the long end of the curve.

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February Inflation Concerns Drive the Move

Leading indicators — particularly sharp increases in food and fresh produce prices — suggest February inflation could come in above earlier market expectations.

• Early-year expectations were in the 2.0%–2.5% range.

• Recent pricing suggests expectations approaching 3.0%.

• Our current February CPI estimate stands at 2.85%.

If realized, annual inflation could temporarily move above 31%.

This shift in expectations has fueled speculation that the Central Bank of the Republic of Turkey (CBRT) may pause rate cuts, limiting short-term room for bond yield compression.

Temporary Correction, Not a Structural Trend

While short-term inflation dynamics may continue to cap near-term declines in yields, we do not expect this deterioration to turn into a lasting trend.

Our outlook for March and April inflation remains constructive. A renewed disinflation trend could reverse part of the recent repricing — especially in longer maturities.

Under this macro framework, the current yield curve structure appears to favor long-duration bonds.

Yield Curve Structure Favors the Long End

Comparing current levels with year-end pricing:

• Long-end yields have repriced meaningfully higher.

• Mid-maturity bonds have not experienced comparable upward adjustments.

Even if mid-term yields decline in coming months, their lower duration limits total return potential. By contrast, longer-dated bonds offer:

• Higher duration sensitivity

• Stronger capital gain potential in a disinflation scenario

This creates a more compelling risk-reward balance at the long end of the curve.

Spotlight on TRT050935T13

Among long-dated securities, TRT050935T13 stands out under current conditions.

• Currently trading at approximately 30% compounded yield.

• Duration close to 3, implying relatively strong price sensitivity to yield moves.

When compared to 2033–2034 maturities:

• Yield differentials remain limited.

• However, pricing appears relatively more favorable in TRT050935T13.

Under normal market conditions, a steeper spread between these maturities would be expected. The current compressed differential enhances upside potential while maintaining a balanced risk profile relative to comparable tenors.

In a scenario where inflation moderates and yields retreat, this bond could generate attractive total returns through both carry and price appreciation.

Bottom Line

Short-term volatility linked to inflation expectations may persist. However, assuming a renewed disinflation trend in March–April, the recent sell-off in long-dated Turkish government bonds appears more tactical than structural.

Current yield levels — particularly in longer maturities — present a meaningful opportunity from a risk-reward perspective.

Within this framework, TRT050935T13 emerges as one of the more compelling options in the current curve structure.

Source:  Gedik Invest

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