Macro and Politics

* The Treasury borrowed TL71.1bn from the domestic markets (including non-competitive sales) through yesterday’s 3y CPI-indexed and 5y fixed coupon bond auctions. For the CPI-indexed auction, the bid – to – cover ratio stood at 2.47x, indicating robust demand, and the real compounded rate came in at 5.18%. For the fixed coupon auction, the bid – to -cover ratio was weak at 1.81x and the average cost of borrowing was 32.12%. With yesterday’s double auctions, the Treasury has completed its domestic borrowing program for March, bringing total domestic borrowing since the beginning of the month to TL194.5bn, which is slightly below the initial projection of TL201.2bn. The Treasury will release its next three-month (April – June 25’) domestic borrowing strategy on March 28^th @ 17:30 local time. According to the previous program (March – May 25’), The Treasury has a hefty domestic redemption of TL293.7bn in April, while in return plans to borrow TL337.8bn throughout the month.

*The Residential Property Price Index (RPPI) registered a monthly rise of 2.8% and an annual increase of 31.3% in February, reaching a level of 170.5. Yet, in real terms, RPPI dropped by 5.6% y/y. It is important to note that while the annual real depreciation in housing prices has continued since February 2024, the 5.6% annual decline observed in February 2025 represents the most moderate contraction in over a year, with the pace of decline slowing since October 2024. Despite consistently high mortgage rates, the sharp annual rise in mortgage-backed home sales seems to reflect expectations that housing prices, which have been falling in real terms since February 2024, will increase in the near future. As a result, we expect the annual real change in the RPPI to potentially shift into positive territory in the coming months.

* Short-term external debt stock in January materialized at USD174.6bn, up by 0.9% m/m. In terms of short-term debt statistics, we believe that “debt stock on a remaining maturity basis,” calculated based on the external debt maturing within 1 year or less regarding the original maturity, is rather critical, which is at USD224.3bn as of January 2025. Of this, USD20.7bn is attributed to loans taken by resident banks and private sector affiliates from their branches and affiliates abroad. Stripping this amount from the total results in USD203.6bn. We also add 12-month forward-looking CAD expectations on this amount so as to reach Turkey’s annual external financing need (EFN).  Accordingly, we calculate EFN as of January 2025 around USD230bn.