Macro and Politics

* The Treasury will hold auctions for a 6m G-bond and a 5y fixed coupon bond today. The Treasury tapped the domestic markets to the tune of TL72bn (including non-competitive sales) via yesterday’s 2y fixed coupon bond auction, while also sold TL66.6bn at the direct sale of 2y TLREFK-indexed lease certificate. The bid-to-cover ratio stood at 2.06x in the 2y fixed coupon bond auction, while the average compound yield was 41.68%. Accordingly, having launched its August domestic borrowing program yesterday, the Treasury has borrowed a total of TL138.5bn so far. According to the Treasury's 3-month domestic borrowing strategy for the August–October 2026 period, the Treasury plans to borrow a total of TL536.7bn from the domestic market in August against redemptions of TL596.3bn, implying a projected rollover ratio of 90%. Following today’s double auctions, the Treasury will continue its August borrowing program with auctions of a 3y FRN and a 4y TLREF-indexed bond on August 17, a 4y CPI-linked bond and a 9y fixed coupon bond on August 18, and direct sales of a 1y USD-denominated bond and a 1y USD-denominated lease certificate on August 20, thereby completing its domestic borrowing program for the month.

* The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) edged up by 0.1% m/m in June, in line with our expectation, returning marginally to positive territory, while calendar-adjusted annual IP contracted by 1.4% y/y. We had expected a monthly increase in industrial production in June, reflecting the fading impact of the bridge-day effect associated with the Eid holiday and the signals from intermediate goods imports excluding gold and energy. However, following the 2.9% m/m contraction recorded in May, the near-flat and limited increase in June indicates that underlying weakness in the industrial sector persists. Accordingly, after contracting by 1.4% y/y in 1Q26, industrial production increased by 1.9% y/y in 2Q26 (1.4% y/y on a calendar-adjusted basis). On a sequential basis, seasonally and calendar-adjusted industrial production grew by 2.0% q/q in 2Q26, following a marginal 0.1% q/q increase in the first quarter. Leading indicators suggest that GDP growth could remain below 3% y/y in 2Q26, albeit somewhat above the first-quarter reading. For the second half of the year, we expect the loss of momentum in economic activity to gradually ease as financial conditions begin to loosen and geopolitical uncertainties subside, paving the way for a more balanced growth profile. Nevertheless, we do not anticipate a strong and broad-based acceleration in growth. We maintain our 2026 GDP growth forecast at 3.2%.