- Turkey slashed its U.S. Treasury holdings from $16 billion to $1.8 billion in March, primarily short-dated securities, as part of a broad intervention to support the lira amid market turmoil tied to the Iran war.
- The central bank also sold foreign currency and gold reserves, and conducted forward FX operations, but the lira remains under pressure with inflation at 32.4% and bond yields at record highs.
- Analysts warn that the stabilization may be fragile, dependent on resolution of the Iran conflict and global dollar liquidity conditions.
Turkey Dumps US Treasuries to Defend Lira
Turkey sold nearly all of its U.S. Treasury holdings in March, slashing them from about $16 billion to just $1.8 billion, according to U.S. Treasury data. The bulk of the decline occurred in short-dated securities, reflecting a rapid reallocation of reserves to support the lira during market turmoil triggered by the Iran war.
The selloff was part of a broader set of interventions by Turkish authorities, who also sold foreign currency and gold reserves to stabilize the economy. The central bank deployed lira-settled forward FX operations and other tools to limit domestic market stress, according to people familiar with the matter. Despite these efforts, the lira remains under pressure, with inflation surging to 32.4% year-over-year and Turkish bond yields hitting record highs.
“The interventions have been aggressive, but without a resolution to the geopolitical tensions in the region, the lira’s stability is questionable,” said one analyst, who spoke on condition of anonymity due to market sensitivity. The Iran war has tightened energy markets and heightened risk aversion, contributing to dollar liquidity needs that have put emerging market currencies under severe strain.
Turkey’s policy mix reflects a balancing act between defending the currency and managing inflationary pressures. The central bank’s reserve depletion has raised concerns about sustainability, as the country’s external vulnerability remains elevated. “The trade-off between using reserves and controlling inflation is a tough one,” another market participant noted. “Without a credible path to lower inflation, the pressure on the lira will persist.”
Neighboring countries have also intervened to stabilize their currencies amid the broader dollar liquidity shift, but Turkey’s move is among the most dramatic. The country has a history of using reserve sales during periods of external shocks, though with varying success. The current episode underscores the challenges faced by emerging markets in a high-inflation, high-volatility environment.
For now, the lira is likely to remain volatile until there is clearer resolution to the Iran conflict and energy price normalization. The central bank is expected to continue monitoring market conditions closely, but without a significant policy shift, the current trajectory may prove unsustainable.
Correction: An earlier version of this article misstated the timing of the Treasury holdings data. The data is from March, not April.