Macro and Politics

* The Treasury will hold a 4y TLREF-linked bond auction today. The Treasury tapped the domestic markets to the tune of TL33.8bn including non-competitive sales (TL14.9bn) via yesterday’s 11m zero-coupon and 5y CPI-indexed bond auctions. The bid – to – cover ratio for 11m zero-coupon bond auction materialized at 2.10x and the average cost of borrowing yield realized at 42.66%. With today’s auctions, the Treasury’s total domestic borrowing since the beginning of the month increased to TL119.4bn. Besides, demand for the CPI-linker remained relatively muted, with a bid-to-cover ratio of 1.30x, while the real compounded rate came in at 5.33%. According to the domestic borrowing strategy for the 3-month period covering April – June 2026, the Treasury plans to conduct TL480.1bn in domestic borrowing against TL505.4bn in redemptions in April, implying a rollover ratio of 95%. Upon completion of this week’s auctions, the issuance calendar envisages a direct sale of a 2y lease certificate on April 13, direct sales of a 1y USD-denominated bond, a 2y gold-denominated bond and a gold-denominated lease certificate on April 14, and auctions of 2y and 5y fixed-coupon bonds on April 21.

* The Treasury and Finance Ministry will release March cash budget figures @ 17:30 local time. The Treasury cash balance posted a deficit of TL92.4bn in February, while the primary balance recorded a surplus of TL90.9bn, bringing the cumulative cash deficit to TL338.7bn in the first two months of the year. The central government budget, in turn, registered a surplus of TL24.4bn in February, with the primary balance posting a surplus of TL208.1bn. Accordingly, the cumulative central government budget deficit reached TL190.2bn in the first two months, while the 12-month rolling deficit narrowed to TL1.5tn from TL1.9tn. The primary balance recorded a cumulative surplus of TL450bn in the same period, with the 12-month rolling primary surplus rising to TL851.8bn from TL473.4bn. The March Treasury cash balance, to be released today, will serve as a leading indicator for the March central government budget figures due on April 15. Looking at the underlying fiscal dynamics, recent price adjustments suggest that the available tax buffer under the échelle mobile mechanism has narrowed significantly. Should Brent crude remain persistently above USD100/bbl, the remaining tax space is likely to be fully exhausted with the next adjustment, implying a full pass-through of subsequent fuel price increases to retail prices. We calculate that, if the entire absorbable tax space is utilized—corresponding to TL13.9 per liter for diesel and TL14.82 for gasoline—the daily fiscal cost of the mechanism could reach approximately TL1.4bn, including VAT effects. While the échelle mobile system helps contain near-term inflation pass-through, it also introduces downside risks to fuel tax revenues and, by extension, to the Treasury cash balance in the event of a persistent oil shock. Under the current configuration, we see a material risk that the budget deficit could exceed our previous forecast of TL2.8tn (3.4% of GDP) and widen to around TL3.3tn (4% of GDP) by end-2026.

* The real effective exchange rate (REER) increased from the revised 102.78 level to 104.61 in March, broadly in line with our expectations, pointing to a 1.8% real appreciation in the Turkish lira. The uptick was primarily driven by the rise in consumer prices outpacing the nominal depreciation in the exchange rate. Accordingly, the Turkish lira recorded a third consecutive month of real appreciation against the equally weighted currency basket, bringing the cumulative real appreciation to 5.6% in the first three months of the year.