Turkey building bonds with foreign investors

• Foreigners raise share of Turkish bonds
• Buying of government debt up 5th week
• Better economic picture draws interest

Foreign investors are moving back into the Turkish bond market, attracted by increased stability in the country’s economy, though overall penetration rates remain down versus a year earlier. 

The share of Turkish bond holdings owned by foreign investors has risen to 7.5 percent as of the end of November, according to data issued by the central bank last week, returning to levels last seen in mid-March. 

Foreign participation in the bond market fell after the arrest of leading opposition figure Ekram İmamoğlu on March 19, with his detention sparking a securities selloff and a 12 percent drop in the lira. 

In the week to November 28, non-residents bought a net $594.5 million of domestic government debt securities, central bank data shows, marking a fifth straight week of increases. 

The late-November inflow took foreign investors’ holdings of government bonds to $17 billion, with a further $546 million in other state-backed securities. 

Though up to pre-March 19 levels, foreign exposure to bonds remains down from its peak at the beginning of 2025, when non-resident investors held just over 10 percent of government paper. 

At least some of the return to securities has been prompted by improved economic circumstances, including lower inflation and interest rates, and an easing of political tension.

Further proof of economic stability came from the falling cost of Turkey’s five-year credit default swap, which declined to its lowest since May 2018 in the first week of December, down to 233 basis points. 

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Driving foreign investors’ return to bonds has been healthier inflation data from November, said Iris Cibre, markets analyst and founder of Phoenix Consultancy, with annual gains in consumer prices easing to 31 percent and expectations of a cut in official interest rates later this month. 

However, Cibre cautioned the trend had yet to be confirmed for the medium term.

“We are not seeing what we call a real-money situation yet. We have to see what happens with the December interest rate decision,” she told AGBI. 

“That will determine whether entries will continue or whether current entries are short-term for capital gains.”

Markets expect a cut of between 100 and 200 basis points in the key lending rate, currently at 39.5 percent, when the Turkish central bank’s monetary policy committee holds its last meeting of 2025 on December 11.