While Türkiye is struggling with the problem of hedge funds, which rose astronomically and subsequently victimized 500 thousand investors, no positive winds are blowing from the global markets. First of all, the US 10-year bonds, which broke records and reached 5.3 percent, scare investors. This dual interest clamp becomes challenging for Türkiye, which borrows from abroad while domestic interest rates are high.
Experts point out that alarm signals come from Europe, especially France and Italy. Of course, the data confirms these warnings. The France-Germany 10-year bond spread reached its highest level since 2012. The France-Germany 10-year government bond yield spread increased to the range of 145-152 basis points (1.45 - 1.52 percent), reaching its highest level since the 2011-2012 Eurozone debt crisis. In this period of global bond sales and oil shocks, France's 10-year bond interest (OAT) has risen above the psychological limit of 5.00 percent, while Germany's 10-year bond interest (Bund), which is considered a safe haven, is around 3.60 percent. Italy's two-year bond yield spread almost doubled in one session compared to Germany, reminding us of the previous Eurozone tension. While most government bonds except Germany and the Netherlands lost value, investors lowered their expectations for further interest rate hikes by the European Central Bank (ECB).
HOW LIMITED CAN THE PROBLEM REMAIN?
Drawing attention to the issue, Yapı Kredi Investment Chief Strategist Murat Berk said, "When high borrowing costs hit the bond markets of the two currency union countries, how long can the problem remain limited?" he asks.
Berk stated that credit spreads have widened, France's CDS premiums have risen sharply, and the premium demanded by investors to hold Eurozone government bonds has again climbed to levels reminiscent of the old government debt crisis years. "This does not mean that Europe has suddenly returned to 2011. However, it shows that the market has started to raise a question that it has not felt the need to ask so loudly for a long time: When does a country's financial problem stop being a local issue and turn into a global problem?" he says.
Murat Berk
BIGGEST DAILY INCREASE IN 6 YEARS
Italy gave the clearest warning on this issue on Thursday. The gap between Italian and German 2-year bond yields almost doubled to 55 basis points; This was the largest daily closing increase recorded since 2020.
Pointing out that this is not a sign of crisis on its own, Berk points out that it is a move that prompts investors to be cautious and comments, "Because the risk of contagion may accelerate when the market starts to reprice the weak links of the chain."
France's similar-term 2-year bond interest rate spread widened by 22 basis points, the biggest jump since 2012; The 10-year OAT-Bund spread reached 141 basis points, the highest level since the sovereign debt crisis. This increase reflects the market having to price two factors at the same time: political uncertainty about next year and a fiscal trend that is becoming increasingly difficult to ignore.
THE MARKET IS NOW QUESTIONING
Murat Berk points out that France has been trading for years with the assumption that its debts are still in the safest ring of the Eurozone risk scale, and says: "The market is now questioning this assumption. The French credit market has also been hit. French state CDS spreads have more than doubled in the last month, reflecting increasing concerns about the country's financial course and the possibility of political turmoil. The upcoming French budget presentation is the next obvious critical point; but it is clear that the market can only make a significant inference from the headline figures." The government aims to reduce the budget deficit from 5.4 percent this year to 5 percent next year, but the market will question that. Another critical issue could come next Tuesday, when the National Union is expected to table its own counter-offer. This document will inform investors about the price of political compromise and, perhaps more importantly, what shape the economic program might take if the party wins the election. In a market that already demands a higher risk premium from France, political arithmetic is becoming more important than budget arithmetic. "There is no rule that things will get worse in France and Italy, but the latest situation reveals how quickly fiscal concerns can spread from a country's budget debates to bond yield spreads, CDS and inter-market contagion in general. Europe has seen this movie before."
