Turkey continues to face mounting pressure on its bonds, which has caused the country to replace Argentina as the worst performer for bond investors, according to a report by Bloomberg. Lira-denominated bonds have fallen 38% year-to-date and 8% within a week.
The benchmark Turkey 10-year bond yield has risen by over 55% since May to its current level of 18.22 as of 2:00 p.m. ET. In addition, Turkey’s stock index is the worst-performing of the major global markets thus far this year.
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. 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.
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.
Related: Possible Carnage in the Bond Market
US Corporate Bond ETFs Rise
With investors fleeing Turkish bonds in favor of higher yields with less credit risk, U.S. corporate bond-focused fixed-income ETFs are an option, such as the iShares Intermediate Credit Bond ETF (NASDAQ: CIU) and SPDR Blackstone/GSO Senior Loan Portfolio (NYSEArca: SRLN).
CIU seeks to track the investment results of the Bloomberg Barclays U.S. Intermediate Credit Bond Index. The ETF’s focus is 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.
In today’s current economic climate, SRLN is an attractive option with its floating rate component, particularly if the Federal Reserve remains hawkish on any forthcoming data that may signal the inclusion of more interest rate hikes starting in September. All assets under the fund are funneled into the Blackstone / GSO Senior Loan Portfolio, and SRLN’s main objective is to outperform a primary and secondary index–the Markit iBoxx USD Liquid Leveraged Loan Index and the S&P/LSTA U.S. Leveraged Loan 100 Index through its investment in senior loans.
SRLN seeks to construct a portfolio of loans that are less volatile than the general loan market. In order to maximize loan portfolio performance, SRLN adds or removes loans that it believes will cause the portfolio to outperform or underperform versus the primary and secondary indexes.
For more trends in fixed income, visit the Fixed Income Channel.