IV Macro Policy & Sovereign Debt·Analysis·Türkiye and Its Neighbourhood
Turkish Treasury leans on floating rates for its heaviest redemption month
In October the Treasury will roll over its entire 409.1 billion lira domestic debt service with new borrowing. At the mid-September auctions, demand for paper indexed to TLREF, which tracks the policy rate, was about 1.8 times that for the fixed-coupon bond.
Macro & Debt Markets Desk · 29 September 2026 · 7 min read · 11 sources
Why it matters
Our previous reports read the pressure on Türkiye through taxation, oil and the risk premium. This report looks at the payments side. In October the Treasury will roll over 100% of its 409.1 billion lira domestic debt service. It will do so in a market where investors want paper tied to the policy rate rather than fixed rates. That choice makes the budget's interest bill more sensitive to the CBRT's 22 October decision, tying monetary and fiscal policy to the same rate.
Implications
- In the Treasury's September–November strategy, October is the busiest month of the period, with 409.1 billion lira of domestic debt service. Planned borrowing equals the service, meaning a rollover ratio of 100%.
- At the 14 September auctions, the 4-year TLREF-indexed bond drew bids of 113.1 billion lira, while bids for the 2-year fixed-coupon bond stopped at 63.9 billion lira. About 59% of net sales came from floating-rate paper.
- The benchmark bond's simple yield rose to 37.03% on 28 September, exceeding the 37% policy rate; non-residents sold a net 116.9 million dollars of government bonds in the week of 18 September.
Why October stands apart
Under the Treasury and Finance Ministry's domestic borrowing strategy for September–November 2026, 801.4 billion lira of domestic borrowing will be raised against 828.5 billion lira of domestic debt service over three months. Domestic debt service is the principal and interest paid on maturing government securities. According to the plan reported by Bloomberg HT, 281.9 billion lira will be borrowed against 296.7 billion lira of service in September. In November, 110.4 billion lira will be borrowed against 122.7 billion lira of service. The rollover ratios for these two months are about 95% and 90% respectively.
October is the exception. Service is 409.1 billion lira and planned borrowing is also 409.1 billion lira, a rollover ratio of 100%. According to the same plan, total payments over the three months come to 1.095 trillion lira, of which 266.3 billion lira is external debt service. According to details reported by İş'te Mersin, total payments in October are the highest of the period at 587.2 billion lira. Twelve bond auctions and 4 direct sales of lease certificates are planned over the period; October's auction dates could not be verified for this report.
Demand is shifting to floating rates
The mid-September auctions show which risk investors want to carry. According to a Dünya report on 14 September, the 2-year fixed-coupon bond priced at a simple rate of 36.63% and a compound rate of 39.98%. That auction drew bids of 63.9 billion lira, and net sales stopped at 34.5 billion lira. On the same day the 4-year TLREF-indexed bond drew bids of 113.1 billion lira, with net sales of 48.9 billion lira. TLREF is a benchmark rate calculated from overnight interbank repo transactions that moves together with the policy rate.
Bids for the floating-rate paper were about 1.8 times those for the fixed-coupon bond. About 59% of net sales across the two auctions came from the TLREF-indexed bond. Sales to primary dealer banks were 9.5 billion lira for the 2-year paper and 30 billion lira for the TLREF-linked paper. This distribution shows that investors do not want to lock the path of rates over the next 4 years in with the Treasury. An investor confident in disinflation would prefer to lock in a fixed return; on 14 September the preference ran the other way.
Yields have overtaken the policy rate
The composition of demand matches pricing at the front end of the curve. According to an AA-sourced market summary, the simple yield on the benchmark bond maturing on 15 March 2028 was 36.68% on 25 September. Capital's midday summary for 28 September showed the simple yield rising to 37.03% and the compound yield to 40.46%. According to Trading Economics, the policy rate has been 37% since 10 September, and the next MPC meeting is on 22 October. A benchmark yield above the policy rate means markets are pricing a possible hike, not easing.
Foreign investors are not absorbing this move. According to the CBRT's weekly data, non-residents sold a net 116.9 million dollars of government bonds in the week of 18 September. Their holdings fell from 18.15 billion to 17.43 billion dollars. Over the same period, the 5-year CDS rose to 248.08 basis points on 25 September, according to Investing.com data. In other words, domestic banks and public institutions will carry the weight of October's 409.1 billion lira rollover.
The hidden link: the budget is tied to the CBRT's decision
As floating-rate debt grows, the Treasury's interest expense tracks the policy rate more quickly. The coupon on the 48.9 billion lira of TLREF-linked bonds sold on 14 September will be reset every 6 months in line with the overnight rate. If the CBRT raises rates on 22 October, the cost of this paper rises automatically in the next coupon period. With fixed-coupon debt, a hike would feed only into new issuance.
The CBRT's rate decision is therefore no longer just a currency and inflation tool but a direct budget item. The contraction in reserves makes this choice harder. According to CNBC-e's Matriks calculation, gross reserves fell to 171 billion dollars in the week of 25 September, having shrunk by about 17.4 billion dollars in five weeks. If the CBRT shifts its currency defence from reserves to rates, part of the bill will reach the Treasury through floating-rate debt. The fourth operation of the fund investigation on 28 September also feeds the same channel by keeping the risk premium alive.
What to watch and what we do not know
There are three indicators for the next 4 weeks. The first is the share of TLREF- or CPI-indexed paper in October's auctions; a share of net sales above 59% would show the shift to floating rates deepening. The second is whether the benchmark simple yield stays above 37%. The third is the official reserve data on 1 October and the MPC decision on 22 October.
What we do not know is also clear. The impact of the liquidation of 131 funds on demand for government bonds could not be verified, because the funds' portfolio composition has not been published. The 290–389 basis-point yield jumps seen on data sites on 28 September are inconsistent with the 35-basis-point rise in the AA benchmark data. This report relies on the benchmark bond data. This reading will be updated as October's auction calendar and the share of public institutions in the auctions are published.
Probabilities
Scenarios
| Scenario | Probability | Trigger | Market impact |
|---|---|---|---|
| H1Rollover completed, cost shifts to floating | 55% | October auctions cover the planned 409.1 billion lira, but demand concentrates in TLREF- and CPI-indexed paper. | Treasury financing proceeds smoothly, but the floating-rate share of the debt stock rises and interest expense becomes more sensitive to MPC decisions. |
| H2Demand shrinks, public-sector weight grows | 30% | The fund investigation widens with new waves, CDS exceeds 275 and foreign selling of government bonds accelerates. | The rollover leans more heavily on purchases by public institutions and primary dealer banks; the CBRT moves towards a rate hike on 22 October. |
| H3Return to fixed rates | 15% | Oil retreats, reserve losses stop and September inflation comes in below expectations. | Investors return to locking in fixed returns, and the Treasury increases fixed-coupon issuance at extended maturities. |
Module A
Constraints Matrix
STRUCTURAL AVG 3.7 · TACTICAL AVG 2.7Structural constraints dominate: the outcome is set more by these limits than by the actors' preferences.
Hard structural constraintspersistent · beyond the actors' will
October redemption wall · Türkiye
4/5October carries 409.1 billion lira of domestic debt service, and planned borrowing equals the service; the rollover ratio is 100%.
Policy rate floor · Türkiye
4/5The policy rate has been 37% since 10 September; the benchmark simple yield rose above this floor to 37.03% on 28 September.
Reserve buffer · Türkiye
3/5Gross reserves fell to 171 billion dollars in the week of 25 September, down about 17.4 billion dollars in five weeks.
Tactical frictiontemporary · eases over time
Foreign outflows weeks
3/5Non-residents sold a net 116.9 million dollars of government bonds in the week of 18 September; holdings fell to 17.43 billion dollars.
Fund investigation weeks
3/5A fourth operation took place on 28 September and the factoring index fell 8.73%; the risk premium is being fed through a domestic channel.
Data uncertainty days
2/5Data sites show yield jumps of 290–389 basis points, while AA benchmark data show 35 basis points; the series change could not be verified.
Module B
Signal vs Noise
SIGNAL 60% · NOISE 40%
- SIGNAL
Investors want to leave interest rate risk with the Treasury
On 14 September the 4-year TLREF-linked bond drew bids of 113.1 billion lira and the 2-year fixed-coupon bond 63.9 billion lira; about 59% of net sales were floating-rate.
- SIGNAL
The front end of the curve is pricing a possible hike
The benchmark simple yield was 36.68% on 25 September and 37.03% on 28 September; the policy rate is 37%.
Data: Türkiye 10-year yield ›Capital — Markets at midday (28 September 2026)
- SIGNAL
Foreign investors are exiting government bonds
Net sales of 116.9 million dollars of government bonds in the week of 18 September; holdings fell from 18.15 billion to 17.43 billion dollars.
İş'te Mersin — Foreigners sold 558.4 million dollars of securities last week
- NOISE
Turkish bond yields jumped 300–400 basis points in a day
On Investing.com the 10-year series was 32.77% on 25 September and 35.67% on 28 September; the AA benchmark data show a rise of about 35 basis points. The gap most likely stems from a series change.
Data: Türkiye 10-year yield ›Investing.com — Turkey 10-Year Bond Yield historical data
- NOISE
October's 409.1 billion lira signals a new financing need
In October borrowing equals service, and over the three months 801.4 billion lira of borrowing is below 828.5 billion lira of service; there is no net new debt.
Bloomberg HT — Treasury to borrow 801.4 billion lira domestically
Module C
Asset-Class and Positioning Implications
| Asset class | Exposure | Transmission channel | H1 | H2 | H3 | Expected | Conviction | Horizon | What to watch |
|---|---|---|---|---|---|---|---|---|---|
| Sovereign debt | Front end of the lira government bond curve | Heavy October rollovers and a benchmark yield above the policy rate set near-term pricing | − | −− | ++ | −0.85 | ●●● | 0–3 months | Benchmark simple yield thresholds of 37% and 38% |
| Sovereign debt | Floating-rate government paper | With coupons reset to the policy rate, price volatility stays limited amid rate uncertainty | + | + | − | +0.70 | ●●● | 3–12 months | Share of TLREF- and CPI-indexed paper in October auctions |
| FX | Turkish lira | Reserve losses and foreign bond outflows raise the cost of defending the currency | − | −− | + | −1.00 | ●●● | 0–3 months | Official reserve data on 1 October and the 49.50 level on USD/TRY |
| Credit | Türkiye sovereign risk premium | The fund investigation and financing mix are priced through CDS | − | −− | ++ | −0.85 | ●●● | 0–3 months | 5-year CDS thresholds of 240 and 275 basis points |
Second-order effects
And then what?
Starting point
In October the Treasury will roll over 100% of its 409.1 billion lira domestic debt service; in mid-September, demand for TLREF-linked paper was about 1.8 times that for the fixed-coupon bond.
- 1
Issuance mixwithin weeks
In October's auctions the Treasury gives more room to the floating-rate and indexed paper where demand is concentrated; on 14 September about 59% of net sales were of this type.
Watch: Share of TLREF- and CPI-indexed paper in net sales in October auction results
- 2
Budget interest expensewithin weeks
As floating-rate debt grows, the budget's interest expense becomes tied to the policy rate; if the CBRT hikes on 22 October, coupon costs rise automatically in the next period.
Watch: The 22 October MPC decision and October budget interest expense published in mid-November
- 3
Sovereign risk premiumwithin months
Higher interest expense widens the budget deficit, and pressure on the risk premium and the lira pushes costs up again in the next rollover period.
Watch: Whether 5-year CDS exceeds 275 basis points and the November budget balance
What breaks the chain
If oil retreats, reserve losses stop and September inflation comes in below expectations, investors return to fixed returns. The Treasury could then increase fixed-coupon issuance, and the chain breaks at the first link.
Triggers
Thresholds to watch
| Indicator | Threshold | Today | What it means |
|---|---|---|---|
| Türkiye 5-year CDS | > 275 | 248 | CDS rising from 248.08 on 25 September to above 275 would show that the October rollover will take place without foreign participation and at a higher cost. |
| Türkiye 10-year yield | > 36% | 32.77 | Yields settling above 36% at extended maturities would force the Treasury to cut fixed-coupon issuance further and turn to floating-rate paper; to be read after checking for series changes. |
| USD/TRY | > 49.50 | 48.98 | The lira weakening from 48.98 on 28 September to above 49.50 would raise the likelihood of the CBRT turning to the rate tool instead of reserves and increase the cost of TLREF-linked debt. |
Sources
- Bloomberg HT — Treasury to borrow 801.4 billion lira domestically
- İş'te Mersin — Treasury's three-month borrowing programme announced
- Dünya — Treasury borrows 143.9 billion lira
- En Son Dakika (AA) — Markets at the close, 25 September 2026
- Capital — Markets at midday (28 September 2026)
- Trading Economics — Turkey interest rate
- İş'te Mersin — Foreigners sold 558.4 million dollars of securities last week
- Investing.com — Turkey CDS 5 Years USD historical data
- CNBC-e — Central Bank total reserves fall for five consecutive weeks
- Investing.com — Turkey 10-Year Bond Yield historical data
- Milliyet — Fund investigation into Destek and Özata (live)
Sourcing and verification rules: methodology · Report an error: contact
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