Turkey’s CDS reaches 19-year high as economic crisis continues to worsen

Turkey's CDS, a gauge of sovereign default risk, reached a 19-year record high of 837 points on June 13 in a dangerous precedent. The indicator expresses the state’s inability to pay its own debts.

Duvar English

The cost to ensure exposure to Turkey's sovereign debt started the week with an increase, in the face of investors' concerns over the Central Bank's monetary policy dictated by the government.

The country's 5-year default swaps (CDS) reached 837 basis points on June 13 – a figure last seen in 2003. This figure is above the highest level that was recorded during the global financial crisis of 2008.

Under rising CDS pressure, the yield on the country’s 10-year dollar bonds rose to an all-time high of 10.6 percent on June 13.

Last week, doubling down on President Recep Tayyip Erdoğan's aversion to raising interest rates, the government launched a series of steps meant to harness the banks and bond markets to cool soaring inflation and stabilize a sliding currency.

Among the steps, the Treasury said it would issue domestic bonds indexed to the revenues of state enterprises to spur lira asset savings, the Central Bank raised the required reserves ratio for lira commercial cash loans to 20% from 10%, and the banking watchdog tweaked a maturity limit for consumer loans.

The lira has shed 23% this year after dropping 44% last year.