Turkey Bears Are on Back Foot Amid Global Rebound, Russian Cash

The return of optimism to global markets is lifting one of its most troubled corners — Turkey.

The nation notorious for responding to elevated inflation with low interest rates was among the worst-hit emerging markets after the outbreak of the war in Ukraine. Now as fears of runaway consumer prices ease around the world, bears are finally loosening their grip on the country.

Turkey’s sovereign credit risk, which surged to a 19-year high last month, has fallen back to 703 basis points, the lowest since May, after Russia’s cash transfer into a Turkish subsidiary boosted foreign-currency reserves. The extra yield investors demand to own Turkish dollar bonds rather than Treasuries has tumbled below 600 basis points for the first time since June.

“I don’t expect Turkey to run a material risk of a default anytime soon, but at 900 basis points, we were close to an extreme threshold,” Cristian Maggio, the head of portfolio strategy at TD Securities in London. “Any substantial drop from current levels is also likely to be unjustified. So perhaps 500-700 basis points is a reasonable trading range.”

The bond-market recovery comes after gains in equities, where the benchmark gauge posted its biggest weekly surge in 21 months. Short interest on a US exchange-traded fund buying Istanbul-listed stocks fell to the lowest level in 2014 amid a world-beating rally.