Turkey’s Risk Premium Surges Amid Political Unrest and Trump’s Tariff Shocks
risk premium
Turkey’s country risk premium (CDS) has spiked to its highest level since November 2023, as mounting domestic political tensions and renewed U.S. tariff threats fuel investor unease. On April 7, Turkey’s 5-year credit default swaps (CDS) climbed to 372 basis points, reflecting intensifying concerns over political stability and external trade risks.
March 19 Crackdown on Istanbul Municipality Triggers Market Volatility
The turning point came on March 19, when Istanbul Mayor Ekrem Imamoglu and multiple municipal officials were arrested, triggering a sharp reaction from financial markets.
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Borsa Istanbul plunged on the first trading day following the arrests
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CDS levels surged above 300 basis points, reflecting investor fears over the political trajectory
According to Bloomberg data, Turkey’s 5-year CDS, which stood at 255 basis points on March 18, climbed steadily—nearing 373 points by April 7.
Trump’s Tariff Announcement Exacerbates Market Stress
Simultaneously, U.S. President Donald Trump’s announcement of a new tariff framework added to the pressure on emerging markets. The combination of protectionist trade policies and domestic political unrest in Turkey has led to a heightened risk environment, prompting further caution from global investors.
Global Financial Turbulence Adds to Headwinds
Former U.S. Treasury Secretary Larry Summers described recent global market movements as the fourth-worst two-day drop since World War II—after the 1987 crash, 2008 financial crisis, and the COVID-19 pandemic.
“This scale of decline suggests deeper problems may be emerging,” Summers warned, urging vigilance amid increasing financial fragility.
Warning Signs from Wall Street
Billionaire hedge fund manager Bill Ackman echoed these concerns, stating on X (formerly Twitter):
“President Trump has a brief window to pause and correct an unfair tariff system. Otherwise, we’re heading toward a self-inflicted economic nuclear winter.”
His remarks highlighted the global ripple effects of trade and political decisions, particularly for emerging markets like Turkey, which remain highly sensitive to external shocks and investor sentiment.