Turkish Traders Brace for More Volatility After Imamoglu Arrest

(Bloomberg) — The costs of borrowing Turkish lira in the offshore market and insuring the country’s debt against default are holding near the levels they set last week, a sign that traders remain deeply on edge after a wild period for the market. The lira dipped against the dollar.

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The offshore rate, known as the tomorrow next offshore forward implied yield, stood at 187%, hovering near its highest level since June 2023 as of 8:18 a.m. in Istanbul. Turkey’s five-year credit default swap was at 327 basis points, little changed from Friday’s level that showed a spike to a one-year high.

The moves suggest traders are bracing for further volatility in Turkish assets on Monday, after Istanbul Mayor Ekrem Imamoglu was formally arrested and jailed on corruption charges on Sunday. The politician was widely touted as the biggest rival to President Recep Tayyip Erdogan in the next national vote. Protests against the arrest and clashes with police forces continued in major cities on Sunday.

Read: What Arrest of Erdogan’s Top Rival Means for Turkey: QuickTake

The lira was around 0.1% weaker at 38.0086 per dollar at 8:21 a.m. in Istanbul, according to data compiled by Bloomberg.

Supportive Measures

Imamoglu’s detention last week sparked a market rout, causing a plummet in the Turkish lira and the stock market, and a spike in bond yields. The country’s top economic and financial institutions quickly got to work in an attempt to limit the fallout.

The central bank held a meeting with executives from banks on Sunday to discuss potential market volatility and future steps, Bloomberg reported, citing people familiar with the matter. The Banks Association later said monetary authorities and lenders had held “a technical meeting.”

Separately, Treasury and Finance Minister Mehmet Simsek held a meeting with regulators on measures to be taken against market turmoil, BloombergHT reported, citing sources it didn’t identify.

Read: Turkey Bans Short Selling, Eases Buyback Rules to Bolster Stocks

Turkey’s market regulator also announced a wide range of measures on Sunday night to buoy the market. Those steps included a ban on short-selling, more relaxed conditions for share buybacks and a reduction of the minimum equity capital protection requirement for margin trading.