The bulls of Istanbul took charge of Turkish financial markets last week as both equity and debt markets rallied. Recent reassurances by Federal Reserve officials of the measured ways in which the Fed may begin to raise policy rates in the coming year, a backtracking of their previous guidance pointing to a rapid tightening, were welcomed throughout emerging markets, including Turkey. The Monetary Policy Committee of the central bank of Turkey kept rates intact last week as demand for Turkish Treasury bond issues continue to rise. Foreign investor investment into Turkey ticked up last week on the eve of unsettling news of two-dozen banks which failed European Central Bank "stress tests." The tide appears to have turned against the terrorist group known as the Islamic State of Iraq and al-Sham (ISIS) as Turkey and the coalition fighting ISIS take steps to restore order in Iraq and Syria. The benchmark BIST-100 was up every day last week, closing it out up 4.6 percent in lira terms and over 5 percent in U.S. dollar terms. The index was up again Monday morning at 79,615, the highest it has been since mid-September. A successful retest of these levels may point to a breakthrough of previously held multi-year highs. The Central Registry Agency's (MKK) foreign participation in the Turkish equity markets index was up over 62 basis points in the last week when it had stood at 62.62 percent. The index which is currently at 63.24 percent has seen a surprising increase in the last week primarily because of worries over growth forecasts in Europe. This sentiment was echoed by the European Central Bank's Asset Quality Review in which 25 of 130 banks failed "stress tests" that were conducted in 2013. Such widespread problems in European banks were a major surprise for investors in Europe, especially as the failed banks were spread out throughout Europe. Banks which failed the test were mostly in southern European countries such as Italy, Greece, Portugal, Slovenia, as well as countries known for their solid banking fundamentals such as Germany and the Netherlands. Although the report pointed out that many of these banks had been notified and that 12 of the 25 had already taken the necessary steps to 'pass' the stress test that they had previously failed, there were still 13 banks which were undercapitalized and which the ECB noted would need help in fixing their fundamentals.With such surprising news out of the ECB, investors in Europe appear to be looking for 'less risky' alternatives with actual return on investment and this is perhaps why Turkey has been doing so well lately. The bond markets rallied alongside equity markets last week as the benchmark two-year government bond issue traded higher as its inversely proportional yield fell significantly. The two-year bond started off the week trading at a yield of 8.63 percent and had fallen down to 8.5 percent by mid-week only to rise again Monday morning trading at 8.63 percent once again. The two-year bond is actually much stronger in the last month as yields have fallen over 110 basis points from a local high of 9.75 percent on Oct. 1. The long-end 10-year bond is also up for the week as its yield dipped 4 basis points from 8.8 percent to 8.76 on Monday morning. It had traded at 8.6 percent at mid-week and it has gained over 100 basis points from its high of 9.8 percent to kick-off the month. The Turkish lira traded up against major currencies last week, rallying against the U.S. dollar on the positive Fed news. The lira was stronger by 0.02 TL against the U.S. dollar for the week as one dollar bought 2.23 Turkish liras Monday afternoon. Insurance against economic and political instability was cheaper to buy for Turkey on Monday. Measured by the price of credit-default swaps (CDSs), the cost to insure Eurozone country Portugal's debt continued to be higher than to insure Turkish debt. Turkish CDSs traded at 1.83 percent whereas Portugal's CDSs traded at 1.98 percent, pointing to a more positive investor sentiment for Turkey.Leading indicators out of the insurance industry point to a pick-up in manufacturing and trade in Turkey. Commenting on these developments, Selim Ismet of Gozetmen Insurance Brokerage remarked, "We've seen a recent spike in freight insurance policies for export goods as the cheaper Turkish lira has apparently attracted buyers of Turkish exports." News out of the Turkish border region with Syria point to a slowing of, if not outright stop to, the advancement of ISIS forces as coalition airstrikes have begun to take effect on the ability of ISIS to advance. Any major defeat of ISIS will be a positive development for regional financial markets, including Turkey's. If crude oil prices continue to drop at their current rate, Turkey's consumers will have much needed disposable income by the end of the year and this will bode well for retailers as well as for the broader consumer-consumption based economy.