The Turkish Lira is tumbling this morning (+150pips at 2.22); rapidly devaluing back towards pre-emergency-rate-hike levels and Turkish bond yields have surged back to levels seen in mid-2009. The driver appears to be the release of several political prisoners, suggesting the President is starting to lose control and given that 'political stability' is the key factor for many of these EM debt markets. The government, however, remains adamant that an "operation" by some institutional holders of lira bonds to "threaten" Turkey's economy started after the probe into government corruption began in mid-December.
As Bloomberg notes,
Economy Minister Nihat Zeybekci says “operation” to undermine Turkey’s economy started after emergence of Dec. 17 probe into alleged govt corruption, state-run Anatolia news agency reports.
Zeybekci links lira volatility to “operation” by some institutional holders of Turkey’s lira bonds: Anatolia
Holders of Turkey debt dumped lira bonds, increased FX positions to “threaten” Turkish economy
Zeybekci says action against economy destined to fail
However one glance at the chart of Turkish bonds and it's clear the selling began amid Taper fears last summer and was merely exacerbated by corruption concerns and EM crisis flows (and who would lock in rates for an allegedly corrupt government)
It would appear the driver of today's weakness is an apparent loss of control by the President as several political prisoners are released by Turkey's 13th high criminal court:
Turkey’s 13th high criminal court rejects release of some suspects in Ergenekon trial today, while 21st criminal court released others in same case, saying parliament’s abolition of specially authorized courts meant they had to be set free, HT reports.
* 21st court decided today to release Ergenekon suspects Tuncay Ozkan, Levent Goktas and Sedat Peker, who were being tried for alleged involvment in the so-called Ergenekon plot to overthrow Prime Minister Recep Tayyip Erdogan’s govt
* 13th court, in contrast, didn’t release suspects, saying that parliament had no authority to dissolve the specially authorized courts that saw the cases, known in Turkish as OYMs
* HSYK, the body that appoints judges and prosecutors - and which was re-structured by the govt amid a corruption probe - says 13th court overstepped its authority and parliament does have the authority to open or shut courts down
* Nationalist lawyer known for suing authors including murdered Armenian journalist Hrant Dink and Nobel Prize-winning author Orhan Pamuk for “insulting Turkishness” freed today, state-run TRT reports.
* Kerincsiz among suspects freed after being jailed in so-called Ergenekon trial of people alleged to be plotting a coup against Prime Minister Recep Tayyip Erdogan
* Lieutenant General Mehmet Eroz also freed, TRT says