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Credit Insights

It's Not Thanksgiving Yet, but Everyone's Talking Turkey

With the lira plunging, it becomes more difficult for Turkey to support and repay its sovereign debt.

Tailwinds from strong economic growth and robust second-quarter earnings reports helped drive corporate credit spreads tighter during the first half of last week. However, credit spreads reversed course and gave up those gains and more by the end of the week.

Over the past few months, investors have become increasingly concerned about Turkey's economic strength, stability, and progressively tense relations with the United States. Those concerns turned into a full-scale currency crisis Friday after President Donald Trump announced that he would double the tariffs paid on Turkish steel and aluminum imports. The Turkish lira plunged approximately 18% against the dollar on Friday before clawing its way back to a 13% loss for the day. This rout adds to the loss of confidence that the lira has suffered this year. Year to date, the lira has declined 40% against the dollar.