Turkish stocks, lira stabilise as political tensions loom; bonds nudge higher

Turkish stocks and the lira stabilised, while the country's ​international bonds nudged higher on Monday, after last week's ​sharp swings triggered by a court ruling targeting ‌the main ​opposition leadership.

The benchmark BIST 100 index opened 0.6% higher on Monday, but gave away much of those gains to trade up 0.05% by 0847 GMT. The banking index gained ‌0.4%, indicating a cautious rebound in a market still sensitive to political developments. The lira was quoted at 45.7200 against the U.S. dollar, compared with a close of 45.70 on Friday.

In bonds, the 2041 paper was up 0.4 cents to 84.8 cents on the dollar, Tradeweb ‌data showed. Five-year credit default swaps (CDS) - an instrument to insure exposure to sovereign bonds against default - stood at 252.8 basis points on ‌Monday, unchanged from Friday's close, data from S&P Global Market Intelligence showed. A Turkish court last week annulled the country's main opposition party (CHP) congress that elected leader Ozgur Ozel in 2023, citing procedural irregularities. The ruling effectively removed Ozel from his position, triggering a deepening political crisis that has unsettled investors. Tensions escalated further over ⁠the ​weekend when Turkish riot police used ⁠tear gas to enter CHP headquarters in Ankara to enforce an eviction order for party officials inside the building. Analysts view the court ruling as a test ⁠of the balance between democracy and autocracy for NATO member Turkey, and say that it could prolong President Tayyip Erdogan's 23-year rule. "As usual, and ​having watched similar roller coasters in the past, I believe that the dust will settle in the short run, after ⁠a period of volatility and questions regarding the political stability - lira, CDS - are to be closely watched," said Ipek Ozkardeskaya, senior analyst, Swissquote.

"Unless the latter (weekend) events lead ⁠to ​broader unrest and cracks in the broader system - as a way to modify medium-long term policies, the long-term impact will likely remain limited." Soon after the court decision last week, the BIST 100 plunged around 6%, prompting a market-wide circuit breaker. Most of Turkey's ⁠international bonds lost more than 1 cent on Thursday, dropping to multi-week lows.

Markets rebounded on May 22, with the benchmark ⁠index rising 4.5% in Istanbul, recovering ⁠part of the previous day's losses. Despite Monday's gains, markets remain sensitive to developments surrounding the CHP and broader political risks, following last week's volatility across equities and other Turkish assets.

Trading is thin with ‌both the UK ‌and U.S. markets shut for bank holidays.

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