In the latest from Turkey, the Erdogan-led government is said to be seeking approval to issue new bonds for banks to pay additional interest to lira deposit holders should the extent of lira depreciation exceed banks’ interest rate. This comes after the emerging market sovereign announced extraordinary measures to compensate lira deposit holders for further depreciation in the currency, which has lost over 70% of its value in 2021, making it the worst performing currency last year. The proposal involves the Treasury issuing these bonds, which cannot be traded, to banks who can in turn use the bonds as collateral to borrow from the central bank via repos, as Evren Kirikoglu, an independent strategist based in Istanbul. Cemal Ozturk, one of the AK Party lawmakers who drafted the bill said, “The Treasury may not have enough cash at any given time. Therefore the regulation paves the way for payment in government bonds.”

Turkey’s 8% 2034s traded over 1 point weaker at 102.68 yielding 7.66%.

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