Macro and Politics

* The Treasury will hold a 4y TLREF-indexed and a 4y FRN bond auctions today. The Treasury tapped the domestic markets to the tune of TL13.2bn, including non-competitive sales, via yesterday’s 4y CPI-indexed bond auction. The bid-to-cover ratio was low at 1.35x, indicating weak demand, while the real compounded yield stood at 5.61%. Moreover, the Treasury also sold TL54.3bn at the direct sale of 1y USD-denominated bond and TL9.5bn at the direct of 1y USD-denominated lease certificate yesterday. As a result, the Treasury commenced its June borrowing program yesterday, raising a total of TL77bn in total. Following today’s double auctions, the Treasury will hold the direct sales of a 2y gold-denominated bond and a 2y gold-denominated lease certificate on June 11. This will be followed by auctions of an 8m zero-coupon bond and a 2y fixed-coupon bond on June 15, and auctions of a 1y TLREFK-indexed bond and a 5y fixed-coupon bond on June 16, thereby completing its June domestic borrowing program.

* The CPI-based real effective exchange rate (REER) index declined by 0.44 points in May to 105.55, marking its first monthly decrease since December 2025. Over the same period, the PPI-based REER index rose by 0.29 points to 101.41. An analysis of the underlying drivers of the CPI-based REER indicates that, on average, the US dollar and the euro appreciated by 1.49% and 1.59%, respectively, against the Turkish lira in May. Meanwhile, monthly CPI inflation accelerated to 1.71%, while domestic PPI inflation stood at 2.75%. Accordingly, the increase in domestic consumer prices provided upward support to the CPI-based REER. However, movements in the nominal exchange rate basket, together with developments in the global CPI basket, exerted a stronger offsetting effect. As a result, the CPI-based REER posted a monthly decline of 0.4% in May.