Türkiye's five-year credit default swap (CDS) risk premiums, which had risen to as high as 327 basis points in March when clashes between the U.S., Israel and Iran intensified, have regressed notably, touching pre-conflict levels, according to a report on Wednesday.
The CDS dropped by about 100 basis points to 230.4 basis points, with expectations that geopolitical tensions will ease and return to pre-conflict levels.
Optimism regarding the negotiation process between the U.S. and Iran has contributed to a decrease in risk perception.
U.S. President Donald Trump's statement that a new meeting could be held in Pakistan within two days indicated that both sides are maintaining a negotiating stance. Trump further increased this optimism by saying in an interview about the war, "(The war) I think it’s very close to over."
Expectations that the two countries could reach an agreement in a short time, along with the pullback in oil prices, have led to a partial decrease in global inflation concerns.
Also, hopes that the war could end soon, combined with the diminished worries about possible "hawkish" steps by the U.S. Federal Reserve (Fed) and the weakening of the dollar, have increased demand in the bond markets.
While market pricing continues to expect that the Fed will maintain its cautious stance until the end of the year, the positive trend in global bond markets has led to a decline in borrowing costs.
With these developments, the U.S. 10-year bond yield fell by about 5 basis points on Tuesday to 4.26% and remains at 4.25%. The five-year bond yield also dropped to 3.8710%, marking the lowest level in about a month.
Due to declining bond yields in international markets and expectations that geopolitical risks may decrease, Turkish CDS has also begun to fall.
Like this, the five-year credit default swap dropped to 230.4 basis points, reaching its lowest level since Feb. 27.
Before the U.S. and Israel began attacks on Iran, Türkkiye's CDS was around 235 basis points, but in March, it had climbed to as high as 327 basis points. Thus, there has been a decrease of nearly 100 basis points during this period.
Additionally, the gap between Türkiye and emerging market CDS indices narrowed to 74.6, the lowest level since Feb. 7, 2020.
