Guys, according to Bloomberg's report, foreign bonds are going back on sale after nine weeks! 🤔
After staying calm for so long, the market finally seems to be picking up. How serious is this, though? Is it a bubble bursting, or are investors actually coming back?
What do you think? Does anyone have any insights on this? Share so we can all try to figure it out together!
Foreign bond market turning to sell-off! What will the market be like nine weeks from now?
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Is the foreign bond sale in nine weeks really a signal, or just a temporary liquidity wave? I always approach this cautiously, especially since central bank monetary expansion periods are over. For example, in 2022, capital flight occurred alongside the Fed's interest rate hikes, and now inflation pressure in the US is still ongoing. The bond sale in nine weeks will depend on liquidity conditions at the time, and if the Fed doesn’t signal rate cuts then, investors could flee again.
But I think the real question is: What will happen to TL volatility with the foreign bond sale? Past experience shows that foreign bond purchases directly impacted the exchange rate, but this time, are local investors also involved? For instance, in 2021, the currency nearly doubled in value as foreigners fled. What’s standing in the way of the TL this time? How strong are the Central Bank’s reserves? Or will the TL face significant depreciation after this sale?
I remembered something that happened to me last year as soon as I saw the foreign bond news, bro. There was a similar surge in March, the market got a bit lively, but then whatever happened, everyone cooled off. I had bought some foreign bonds back then too, honestly, I was trying to escape inflation worries, but when I sold a month later, I took about a 2% loss. Now, talking about the market nine weeks later, what they're really trying to say is: are governments in need of funding? Have their capacities run out?
I think the real question here is: what's the underlying reason for this sell-off? If it's truly about external debt needs and global risk appetite stays low, prices could eventually get hammered. Last year, there were warnings from the IMF too, bond yields spiked suddenly. So if US 10-year bond yields go above 4.50% and risk appetite drops, there could be a wave of selling in foreign bonds. But if this is just temporary liquidity tightness and the Fed cuts rates, maybe the market bounces back, I reckon.