In a report titled “Now or Never,” analysts led by Christian Vietoska cited the following factors: orthodox monetary policy from the Central Bank of the Republic of Turkey, an updated credit rating, attractive carry opportunities and, most importantly, a change in domestic perception.
“Exchange rates confirm slowing inflation”
The strategists said they expect inflation to fall. “Furthermore, weakening domestic demand, tightening credit conditions and a stabilizing exchange rate are supporting slowing inflation – the most important aspects of our constructive forecast.”
Unlike the crowded positioning in the TL carry trade, positioning in lira-denominated bonds remains weak, the experts said, adding: “Furthermore, expectations of lower net bond issuance in the summer could support TL bonds.”
Low valuation
Noting that current valuations are cheap, Witska said the 10-year yield has room to fall about 400 basis points this year, which would equate to a decline of about 28%, and that the 2-year yield could fall by 850 basis points.
Deutsche Bank is not the only bank betting on a rise in Turkish government bonds. Pictet Asset Management also said last week that it had increased its weighting in Turkish government bonds and added two- to five-year bonds to its portfolio, benefiting from expectations of record inflation and hawkish signals from the central bank.
