Macro and Politics

* The Ministry of Treasury and Finance raised a total of TL44.2bn in domestic borrowing at yesterday’s auctions of a 10-month zero-coupon bond and a 5-year fixed-coupon bond, including non-competitive (ROT) sales. Demand conditions were relatively subdued across both tenors. In the 10-month zero-coupon auction, the bid-to-cover ratio came in at 1.62x, with the average compounded yield realized at 42.51%. In the 5-year fixed-coupon auction, the bid-to-cover ratio stood at 1.45x, while the average compounded yield was 38.33%. According to the domestic borrowing strategy for the three-month period covering May – July 2026, the Treasury plans to conduct TL381.7bn in domestic borrowing against TL347bn in redemptions in May, implying a rollover ratio of 110%. Following yesterday’s auctions, the issuance calendar indicates that the Treasury will hold auctions of 2-year fixed-coupon and 4-year CPI-linked bonds on May 11. On May 12, this will be followed by an auction of a 4-year TLREF-indexed bond, along with direct sales of a 2-year USD-denominated bond and a USD-denominated lease certificate of the same maturity. On May 18, the Treasury will conduct direct sales of a 1.5-year gold-denominated bond and a gold-denominated lease certificate, thereby completing its domestic borrowing program for May.

* The real effective exchange rate (REER) rose to 106.3 in April, up from a revised 104.71 in the previous month, marking its highest level since February 2020 and implying a 1.5% real appreciation of the Turkish lira. The increase was primarily driven by consumer price inflation outpacing the pace of nominal depreciation. A breakdown of the CPI-based REER components indicates that, on a monthly average basis, the US dollar and the euro appreciated by 1.31% and 2.2%, respectively, against the lira. As a result, the lira extended its streak of real gains against the equally weighted currency basket to a fourth consecutive month, bringing the cumulative real appreciation to 7.3% in the first four months of the year.