Turkey’s market is quickly losing investors. In the middle of February, market participants started selling off Turkey’s sovereign dollar bonds in an attempt to protect their assets from a default. The main reason to leave the market is an escalation in the military conflict at the border with Syria. The Turkish government announced that it is ready to resort to extreme measures, if the Kurdish soldiers approach the northern Syrian town of Azaz. Several sources reported that the Turkish troops were deployed in that region. However, Ankara is denying the information. Nevertheless, traders have decided to sell off Turkey’s bonds.
The situation was also fueled by Russian Council's International Affairs Committee chairman Konstantin Kosachev. He said that there is a possibility of the Russian-Turkish war. Turkey’s aggressive policy in regard to Syria can provoke a war with Russia. Kosachev said that Turkey would not have the backing of the West. Besides, he added that there is a risk of a potential war with Iran and even worse, with Russia that has already proved its power and ability to use it.
As a result, a spread between yields on Turkey’s bonds and US bonds hit the highest level last seen in September 2015. Besides, yields on two-year bonds reached almost a 3-week high. At the same time, the Turkish lira lost 0.7% against the US dollar.
