Türkiye’s five-year credit default swap (CDS), a key measure of sovereign risk, fell to 217 basis points, its lowest level since Feb. 18, as expectations of easing geopolitical tensions in the Middle East and recent domestic liquidity management steps improved market sentiment.
Optimism over a possible reduction in regional risks increased after reports suggested the United States was preparing to return diplomats to embassies evacuated during tensions with Iran, while mediator countries indicated negotiations between the parties could resume. Expectations that diplomatic contacts between Washington and Tehran could restart also contributed to a decline in risk perceptions.
The developments eased concerns over global energy supplies and pushed oil prices lower. The drop in oil prices helped alleviate inflation worries and supported a decline in U.S. Treasury yields.
At home, the Central Bank said it would resume one-week repo auctions, which had been suspended since March 1, 2026, as part of its Turkish lira liquidity management framework. Markets interpreted the move as a signal of a return to a more conventional liquidity management structure.
Türkiye’s two-year government bond yield subsequently fell below 40 percent for the first time since July 2, while longer-term yields also edged lower.
Özlem Derici Şengül, founding partner of Spinn Consulting, said several factors were behind the decline in Türkiye’s CDS, with falling bond yields having the most direct impact. She said inflation expectations had not yet improved significantly and that there had been no major changes in exchange-rate risks or other macroeconomic risk indicators.
According to Şengül, lower oil prices, easing conflict-related concerns and increasing expectations of future CBRT rate cuts supported the decline. Stronger central bank reserves also contributed positively to the country’s risk profile.
However, she warned that the durability of the improvement remains uncertain. Şengül cited the possibility of wider U.S. sanctions on Iran affecting Türkiye, which imports significant volumes of Iranian natural gas, as one risk factor. She also noted that renewed regional tensions could push oil prices higher again if sanctions fail to achieve their objectives.
She identified deteriorating inflation expectations among households and companies as another risk and said a slowdown or reversal in reserve accumulation, while less likely, could also weigh on sentiment.
Seda Yalçınkaya Özer, head of Strategy and Investment Advisory at Yatırım Finansman, said the move in CDS should be assessed through both global and domestic developments. She said diplomatic expectations surrounding talks involving Iran, Pakistan and Oman helped reduce the risk premium embedded in oil prices, while the U.S. appeared to be relying more on economic pressure than military measures against Iran.
Özer said easing regional tensions had contributed to a broader narrowing of risk premiums across emerging markets, though any Iranian move affecting the Strait of Hormuz could quickly reverse current market pricing.
She also highlighted the Central Bank’s decision to restart weekly repo auctions after roughly six months as an important signal.
“Bringing funding costs closer to the official policy rate of 37 percent from overnight levels around 40 percent is being interpreted by markets as a step toward normalization and has revived expectations of a possible rate cut in September,” she added.
Markets view the move as confirmation that the normalization process is continuing alongside a gradual slowdown in inflation, Özer said.
