IV Macro Policy & Sovereign Debt·Analysis·Türkiye and Its Neighbourhood
Foreigners are quitting the lira, not Türkiye, and carry limits the cut
In the week to 2 October, foreigners sold $484.7 million of lira government bonds while putting $928.5 million into Treasury dollar bonds. Net reserves excluding swaps fell by $2 billion the same week. The constraint facing the 22 October MPC is no longer credit risk but demand for lira carry.
Macro & Debt Markets Desk · 9 October 2026 · 7 min read · 14 sources
Why it matters
Noise: the debate over a 100 basis point cut or a hold on 22 October. Signal: in the week to 2 October, foreigners pulled $484.7 million out of lira government bonds and put $928.5 million into general government dollar bonds; three-week outflows from lira bonds reached $1,008.2 million. The five-year CDS was calm at 247.80 basis points on 7 October. Foreigners are pricing the value of the lira, not Türkiye's ability to pay. With the 2-year yield at 36.47%, below the 37% policy rate, lira carry is shrinking, and reserves, down to $37.9 billion excluding swaps, are absorbing the exit.
Implications
- In the week to 2 October, foreigners sold $484.7 million of lira government bonds and bought $928.5 million of Treasury eurobonds. The total net change was +$826.1 million in offshore issues and −$734.6 million in domestic securities.
- Net reserves excluding swaps fell from $39.9 billion to $37.9 billion the same week; predetermined foreign currency liabilities rose 4.1% to $55.9 billion.
- The 2-year yield stood at 36.47% on 8 October, 53 basis points below the 37% policy rate. The market is pricing a cut, but Goldman Sachs says foreigners are not joining that trade by buying bonds.
Noise
The debate over a 100 or 200 basis point cut at the 22 October MPC
Signal
Foreigners left lira bonds and bought Treasury dollar bonds in the same week
The noise is the size of the cut, the signal is the mix of flows
The market is debating the 22 October meeting of the Monetary Policy Committee (MPC). According to views compiled by Politikam on 5 October, economist Kutay Gözgör expects a 100 basis point cut to 36%, while Ali Çufadar argues for 200 basis points if conditions allow. İşçi Haber reported on 8 October that Goldman Sachs expects the rate to stay at 37% and sees the risks to that forecast as quite high. This debate is noise. The variable that will decide the size of the move is not in the headlines but inside foreign portfolios.
The weekly securities data the CBRT published on 8 October revealed that variable. According to Endeks24, foreigners sold $484.7 million of lira government bonds in the week to 2 October. The same week, general government dollar bonds issued abroad, Treasury eurobonds for short, drew a net $928.5 million. The money did not leave the country. It left the lira and moved into the same state's dollar debt.
Credit risk is kept, currency risk is dropped
The divergence is not a one-week event. Endeks24's table shows lira bond outflows of $113.6 million on 18 September, $409.9 million on 25 September and $484.7 million on 2 October, a three-week total of $1,008.2 million. Foreign holdings of lira government bonds fell from $17,121.1 million to $16,659.2 million. A Bizim Menkul report carried by Foreks shows net inflows into lira bonds since the start of the year down to $1,001.9 million. The three-week outflow is the same size as that entire accumulation.
The price of credit risk, meanwhile, is calm. Investing.com data put the five-year CDS, the annual cost of insuring Türkiye's dollar debt against default, at 247.80 basis points on 7 October, down from 255.69 on 2 October. CBRT data cited by Yatırımx show a total net change of +$826.1 million in offshore issues. Foreigners do not doubt that Türkiye will repay its debt. What they doubt is whether lira returns will cover currency losses.
The constraint is demand for carry
Carry is the interest differential an investor earns by funding in dollars and investing in lira assets, for as long as the exchange rate holds. That demand is the main channel that lets the CBRT keep the lira stable without spending reserves. Investing.com shows the 2-year benchmark yield at 36.47% on 8 October, 53 basis points below the policy rate; the 10-year yield was 32.84%. Bizim Menkul says the 2-year yield fell 41 basis points in the week to 2 October alone. The market has already priced the cut, and the carry margin on bonds has narrowed.
Goldman Sachs' 7 October assessment points to the same place. As reported by İşçi Haber, the bank wrote that while the market priced a cut, foreigners did not materially increase their bond positions, and that offshore pricing showed notable pressure on the lira. A cut would squeeze the carry margin further. Foreigners have already shown their preference this week by shifting into eurobonds; a cut could accelerate that shift.
Reserves are footing the bill
Dünya reported on 8 October that official reserve assets fell $3.8 billion to $167.4 billion in the week to 2 October. Net reserves excluding swaps, the buffer left after deducting currency swaps with banks, fell from $39.9 billion to $37.9 billion. A table cited by Borsa Gündem shows predetermined foreign currency liabilities up 4.1% at $55.9 billion and net liabilities from CBRT swaps at $19.3 billion.
The mechanism is simple. When a foreigner sells a lira bond and converts to dollars, someone has to supply the dollars; if the market does not, the CBRT does. Bloomberg HT put USD/TRY at 49.22 on the evening of 8 October. Trading Economics gives 49.3451 and a record of 49.35 for the same day; the two sources measure different times. Reserves draining while the exchange rate stays flat shows that the cost of lira stability is being paid on the balance sheet.
What comes next
Dünya reported on 7 October that the CBRT will publish the August balance of payments on 13 October. The AA Finans survey expects a $3.5 billion current account surplus, with a $48 billion deficit expected for the end of 2026. A surplus eases dollar supply briefly but does not offset portfolio outflows. The securities and reserve data for the week to 9 October, due at 14:30 on 15 October, will be the first of the last two weekly readings before the MPC. The calendar cited by Nefes puts S&P's review of Türkiye on 16 October; agencies are not obliged to publish on the scheduled date.
The thesis is this: a cut made before foreigners return to lira bonds will lean the currency balance even harder on reserves. The thesis would be refuted by two consecutive weeks of net inflows into lira bonds in the 15 and 22 October data, with net reserves excluding swaps back above $40 billion.
Probabilities
Scenarios
| Scenario | Probability | Trigger | Market impact |
|---|---|---|---|
| H1A cut without carry | 45% | The MPC cuts by 100 basis points on 22 October and foreigners keep exiting lira bonds gradually. | The lira is held flat by spending reserves, net reserves excluding swaps fall into a $35–37 billion band, and demand for eurobonds holds. |
| H2Hold and repair carry | 35% | The MPC holds at 37%, as Goldman expects, and lira bond flows stabilise in the 15 and 22 October data. | The carry margin is preserved, foreigners return gradually to lira bonds and the reserve drain slows. |
| H3The currency channel breaks | 20% | After a cut, lira bond outflows accelerate and spread to eurobonds, and USD/TRY breaks 50.50. | Lira risk spills into credit risk, and the CBRT is forced into extra tightening or macroprudential steps. |
Module A
Constraints Matrix
STRUCTURAL AVG 4.0 · TACTICAL AVG 2.3Structural constraints dominate: the outcome is set more by these limits than by the actors' preferences.
Hard structural constraintspersistent · beyond the actors' will
Net reserves excluding swaps · Türkiye
5/5$37.9 billion in the week to 2 October, down $2 billion in one week. This is the CBRT's own buffer for defending the lira without swap support.
Carry margin · Türkiye
4/5The 2-year yield was 36.47% on 8 October, 53 basis points below the policy rate. A cut narrows the margin further and weakens the case for foreigners to hold lira bonds.
Scheduled FX liabilities · Türkiye
4/5Predetermined FX liabilities rose 4.1% to $55.9 billion; net liabilities from swaps are $19.3 billion. The amount leaving reserves follows a fixed calendar.
Inflation gap · Türkiye
3/5Annual inflation was 29.73% in September; against a 37% policy rate, the real rate is about 7.3 points. Each 100 basis point cut thins that buffer by 1 point.
Tactical frictiontemporary · eases over time
Fund liquidation timetable weeks
3/5Payments have been made in 17 of 131 funds; a 10-article bill setting interim payments of up to 1 million lira goes to parliament next week.
Exchange rate measurement gap days
2/5Bloomberg HT gives 49.22 for USD/TRY on 8 October and Trading Economics 49.3451; the different times show pressure on the lira building during the day.
Rating review days
2/5S&P's scheduled review of Türkiye falls on 16 October; the agency is not obliged to publish on that date.
Module B
Signal vs Noise
SIGNAL 67% · NOISE 33%
- NOISE
The debate over a 100 or 200 basis point cut at the 22 October MPC
According to Politikam, Gözgör expects 100 basis points to 36% and Çufadar 200 if conditions allow; Goldman Sachs expects a hold. The debate is about the size of the cut, not about who will finance it.
- SIGNAL
Foreigners left lira bonds and bought Treasury dollar bonds in the same week
In the week to 2 October, $484.7 million left lira bonds and $928.5 million entered Treasury eurobonds; three-week lira bond outflows were $1,008.2 million, leaving holdings at $16,659.2 million.
Endeks24 — Foreigners pulled $1.01 billion out of lira government bonds in three weeks
- SIGNAL
The price of credit risk is calm; the worry is the currency
The five-year CDS was 247.80 basis points on 7 October, below 255.69 on 2 October. Over the same period, outflows from lira bonds accelerated.
Data: Türkiye 5-year CDS ›Investing.com — Turkey CDS 5 Years USD historical data
- SIGNAL
Net reserves excluding swaps are settling below $40 billion
Official data put them at $37.9 billion in the week to 2 October, from $39.9 billion a week earlier. Net reserves rose $410 million to $53.8 billion.
- NOISE
The BIST 100 rebound on 8 October shows the stress has passed
The index rose 0.75% to 12,213.58, but the factoring-leasing index fell 5.93% and has been down for 17 sessions; the banking index slipped 1.54%.
- SIGNAL
The market is pricing a cut, but foreigners are not adding to bond positions
On 7 October Goldman Sachs wrote that foreigners had not materially increased bond positions and that offshore pricing showed pressure on the lira; the 2-year yield fell 41 basis points in a week.
Module C
Asset-Class and Positioning Implications
| Asset class | Exposure | Transmission channel | H1 | H2 | H3 | Expected | Conviction | Horizon | What to watch |
|---|---|---|---|---|---|---|---|---|---|
| Sovereign debt | Lira government bonds, near-term maturities | A cut lowers yields, but foreign outflows weigh on prices | + | − | −− | −0.30 | ●●● | 0–3 months | Weekly lira bond flows and the 2-year yield's gap to the policy rate |
| Sovereign debt | Treasury dollar-denominated bonds | Foreigners keeping credit risk supports demand; it reverses if a currency shock hits CDS | + | + | −− | +0.40 | ●●● | 3–12 months | General government offshore issuance flows and the five-year CDS |
| FX | USD/TRY path | A currency held by spending reserves grows fragile as the buffer thins | − | + | −− | −0.50 | ●●● | 0–3 months | Net reserves excluding swaps and the 50.50 mark on USD/TRY |
| Credit | Turkish banks' external borrowing | Banks' offshore issues saw $143.3 million of weekly outflows; lira risk feeds into their external funding costs | − | + | −− | −0.50 | ●●● | 3–12 months | Flows into banks' offshore issues |
| Volatility | Lira currency volatility | Implied volatility is suppressed while reserves pin the lira, then jumps once the buffer runs out | + | − | ++ | +0.50 | ●●● | 0–3 months | Lira moves in the two weeks after the 22 October MPC |
Second-order effects
And then what?
Starting point
In the week to 2 October, foreigners pulled $484.7 million out of lira government bonds and put $928.5 million into Treasury eurobonds. The same week, net reserves excluding swaps fell by $2 billion to $37.9 billion.
- 1
Portfolio flowswithin weeks
The MPC cuts on 22 October and the 2-year yield stays below the policy rate; with the carry margin squeezed, foreign outflows from lira bonds continue at around $500 million a week.
Watch: Lira bond flows in the weekly securities statistics due on 22 and 29 October
- 2
Reserves and FXwithin weeks
Foreigners leaving lira bonds convert to dollars and the CBRT meets the demand; net reserves excluding swaps slide towards $35 billion, and scheduled FX liabilities squeeze the buffer further.
Watch: Net reserves excluding swaps and predetermined FX liabilities in the weekly international reserves table
- 3
External borrowing costswithin months
As the reserve buffer thins, lira risk spills into credit risk; CDS rises, eurobond inflows reverse and the Treasury's external borrowing costs climb.
Watch: Five-year CDS breaking 275 basis points and general government offshore issuance flows turning negative
What breaks the chain
The chain breaks if foreigners return to lira bonds after the MPC: two consecutive weeks of net inflows and net reserves excluding swaps back above $40 billion would show carry demand rebuilt.
Triggers
Thresholds to watch
| Indicator | Threshold | Today | What it means |
|---|---|---|---|
| USD/TRY | > 50.50 | 49.22 | If USD/TRY breaks above 50.50 from the 49.22–49.35 range of 8 October, reserve defence is failing to hold the currency; H3 gains weight. |
| Türkiye 5-year CDS | > 275 bp | 248 | If CDS rises above 275 from 247.80 on 7 October, foreign concern over the lira has spilled into credit risk; eurobond inflows reverse. |
| Türkiye 10-year yield | > 34.00% | 32.84 | If the 10-year yield rises above 34% from 32.84% on 8 October, the market has started pricing lira risk rather than a rate cut. |
Sources
- Endeks24 — Foreigners pulled $1.01 billion out of lira government bonds in three weeks
- Yatırımx — Are foreigners fleeing equities and bonds? CBRT data released
- Foreks — Analysis: foreign equity and government bond transactions (Bizim Menkul)
- Dünya — CBRT data: reserves fell by about $4 billion
- Borsa Gündem — CBRT reserve assets fell to $167.4 billion
- Investing.com — Turkey 2-Year Bond Yield historical data
- Investing.com — Turkey 10-Year Bond Yield historical data
- Investing.com — Turkey CDS 5 Years USD historical data
- İşçi Haber — Goldman Sachs on the CBRT rate decision: too early for a cut
- Politikam — Rate cut expectations firm: 100 or 200 basis points?
- Bloomberg HT — Market wrap, 8 October 2026
- Trading Economics — Turkish Lira
- Dünya — Economists' current account forecast: a surplus expected for August
- Nefes — Moody's and S&P 2026 rating calendars for Türkiye announced
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