While the Turkish lira has been languishing amid geopolitical tensions with the United States, U.S. corporate bond-focused fixed-income ETFs edged higher, such as the iShares Intermediate Credit Bond ETF (NASDAQ: CIU)–up 0.16%, iShares iBoxx $ Invmt Grade Corp Bd ETF (NYSEArca: LQD)–up 0.13% and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT)–up 0.20%.
CIU tracks the investment results of the Bloomberg Barclays U.S. Intermediate Credit Bond Index. CIU focuses on investment-grade corporate debt and sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than one year and less than or equal to ten years.
LQD seeks to track the investment results of the Markit iBoxx® USD Liquid Investment Grade Index composed of U.S. dollar-denominated, investment-grade corporate bonds. LQD allocates 95 percent of its total assets in investment-grade corporate bonds to mitigate credit risk. VCIT seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity, namely the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. While VCIT holds debt issues with maturities between 5 and 10 years, they are all investment-grade holdings to minimize default risk.
Niagara Falls-Like Dive for Turkish Lira
Turkey continues to face mounting pressure on its currency as well as its bonds, which has caused the country to replace Argentina as the worst performer for bond investors, according to a report by Bloomberg. Against the dollar, the Turkish lira has experienced a Niagara Falls-like drop to its current, depressed levels the past week.
Turkey is also feeling the pangs of U.S. President Donald Trump’s decision to impose tariffs of 25% on imported steel and 10% on imported aluminum–President Trump doubled down on the tariffs today with the announcement that tariffs would be hiked to 50% and 20%.. Turkey is threatening to hit the U.S. with its own wave of tariffs on cotton – a staple input for Turkey’s high-exporting garment industry.
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
Additionally, President Trump imposed sanctions on Turkey’s interior and justice ministers just last week for their role in the internment of U.S. pastor Andrew Brunson as well as other Americans for terrorism. These geopolitical concerns have also wreaked havoc on the Turkish lira.