Is the Credit Interest Rate of Turkish Companies Determined in New York and Tokyo?

The first indicator that firms in Türkiye typically consult when assessing the cost of credit is probably the CBRT policy rate. For Turkish-lira loans this approach is largely correct. For companies that use foreign-currency credit, syndication loans or eurobond issues, or that are affected by banks’ foreign funding conditions, however, the picture is more complex. It would not be an exaggeration to say that “part of a Turkish company’s financing cost is determined in Ankara, while another part is, in practice, determined in New York and, to an increasing extent, in Tokyo”:

Developments in 2026 tend to corroborate this observation. According to U.S. Department of the Treasury data, the 10-year U.S. Treasury yield rose from 4.19% on 2 January 2026 to 4.75% on 31 August. Long-term dollar risk-free rates thus increased by about 56 basis points. Although the Federal Reserve held the federal funds target range at 3.50–3.75% at its July meeting, long-term bond yields remained elevated. This matters for firms: the persistence of a high long-term dollar price will affect borrowing costs just as much as the policy rate not being cut.

The change in Japan is also noteworthy. At 10-year Japanese government bond auctions conducted by the Ministry of Finance, the weighted-average yield rose from 2.095% on 6 January to 2.995% on 1 September. Comparing auction results, the increase is about 90 basis points. Japan, for many years almost a zero-cost funder of the global financial system, is becoming a country that offers progressively higher yields.

How Does the U.S. Treasury Yield Enter a Turkish Company’s Loan Rate?

The cost of long-term, fixed-rate dollar borrowing can be shown, in simplified form, as follows:

Turkish Company’s USD Borrowing Cost = U.S. Risk-Free Rate + Türkiye Country Risk + Firm/Bank-Specific Credit Margin

As the formula indicates, an increase in the U.S. 10-year Treasury yield, other things equal, raises the financing base of Turkish companies directly. In floating-rate bank loans, short-term reference rates such as SOFR are generally used instead of the 10-year Treasury. New York Fed data show that at the end of August 2026 the 30-day SOFR average stood at about 3.65%. Thus, although the reference rate varies with maturity, the common point is the same: when the global price of the dollar rises, dollar finance for a Turkish company also becomes more expensive.

The IMF has noted that swap rates in emerging markets have become increasingly sensitive to changes in the 10-year U.S. Treasury yield, and that the effect grows when global volatility rises. In other words, a 50-basis-point increase in U.S. yields may not always be confined to 50 basis points; the same shock can also raise country risk premia.

Why Does Japan Belong in the Equation?

An important distinction should be drawn here: the Japanese 10-year government bond yield does not affect the cost of a Turkish company’s dollar loan directly. Japan’s influence appears at a second stage, through global portfolio choice and risk appetite.

For years, investors could borrow yen at low cost and invest in higher-yielding U.S. or emerging-market assets, thereby exploiting an arbitrage opportunity. Rising yen rates and Japanese government bond yields will narrow that opportunity. When a Japanese investor can obtain a 10-year government bond yield of about 3% at home, the return required to invest in riskier markets such as Türkiye will rise.

The BIS reported in August 2024 that the partial unwinding of yen carry-trade positions produced tighter financial conditions even along the Japan-to-United States corridor. The essential importance of Tokyo’s rate increase for Türkiye is therefore that it raises the opportunity cost of global liquidity.

CDS Is Among the Most Critical Variables Determining Turkish Firms’ External Financing Costs

One of the most critical variables determining Turkish companies’ external financing costs is the CDS level, which shows Türkiye’s credit risk premium. According to CBRT data, the five-year Türkiye CDS spread stood at 215 basis points on 21 January 2026, rose to 254 basis points on 11 March, and was 233 on 21 April, 241 on 10 June and 240 on 22 July. Market data at the end of August 2026 indicate that the CDS spread had eased again to about 217 basis points.

This development becomes particularly important when read together with global interest-rate moves. Since the beginning of 2026 the U.S. 10-year Treasury yield has risen by about 56 basis points and the Japanese 10-year auction yield by about 90 basis points. In other words, the basic cost of long-term borrowing has increased on a global scale. That Türkiye’s CDS spread has nevertheless returned close to its start-of-year level suggests that an improvement in Türkiye-specific risk perception has partly limited the adverse effect of global rate increases on Turkish companies’ financing costs.

The mechanism is quite clear. The external borrowing cost of Turkish companies in foreign currency does not depend only on U.S. or other advanced-economy government bond yields. Türkiye’s country risk premium and the firm’s own credit risk are added on top of those yields. Therefore a decline in Türkiye CDS while global rates are rising can offset part of the increase in total borrowing cost.

The reverse case would have been far more adverse. Had Türkiye’s CDS spread risen over the same period from about 215 basis points to 350, the additional cost arising from country risk alone would have increased by about 135 basis points. Combined with the rise in U.S. and Japanese bond yields, that increase would have made Turkish companies’ access to external finance more expensive and would have exerted much stronger pressure on firms with high leverage, low interest-coverage capacity or short-term foreign-currency debt.

The CBRT’s May 2026 Financial Stability Report also supports this assessment. The report emphasises that elevated global bond yields have tightened financing conditions and that capital flows to emerging markets are highly sensitive to changes in global risk appetite. It also notes that foreign-currency loans in Türkiye are concentrated mainly among large firms. Movements in global rates and in Türkiye CDS are therefore of direct importance for the borrowing costs of large companies that rely more heavily on external finance and foreign-currency credit.

The Effect Is Not Limited to Foreign-Currency Loans

For an SME that borrows in Turkish lira, it cannot be said that a U.S. or Japanese government bond enters the loan contract directly. The principal determinants of TL commercial loan rates are the CBRT’s monetary policy, banks’ TL funding costs, credit risk and macroprudential regulation. Indeed, as of 17 July the CBRT reported the TL commercial loan rate, excluding overdrafts and credit cards, at 48.9%; the policy rate was held at 37% at the 23 July meeting.

Global interest rates nevertheless affect TL credit costs indirectly. If rising U.S. and Japanese yields reduce global risk appetite, capital outflows from Türkiye, an increase in CDS and depreciation pressure on the lira may follow. When exchange-rate pressure disturbs inflation expectations, the CBRT’s room to cut rates narrows. A rise in New York and Tokyo rates can thus constrain the pace of rate cuts in Ankara.

Viewed in this light, interest-rate moves in New York or Tokyo, even if they are not written into an Ankara SME’s bank loan contract, form an important part of the global financial conditions that affect how quickly rates in Türkiye can fall. For the SME the main risk is not that a global rate increase is added directly to the loan rate, but that it may delay monetary easing in Türkiye and cause high financing costs to persist for longer.

What Should Turkish Firms Do?

The basic conclusion for Turkish firms is this: companies’ cost of credit can no longer be treated solely as the result of monetary policy applied in Türkiye. For firms that access external finance and borrow in foreign currency, financing cost has become a structure jointly determined by national and global variables.

In this structure, U.S. Treasury yields are among the most important indicators of the basic cost of global dollar finance. Türkiye’s CDS spread reflects the price of country risk added on top of that global cost. Japanese government bond yields matter especially for global portfolio choice and carry-trade activity. Rising rates in Japan reduce the appeal of investment strategies that for many years rested on low-cost yen funding and can change the risk/return calculus of capital directed to emerging markets. Turkish companies’ financing conditions are therefore shaped in a more complex global financing environment in which monetary policy in Washington, interest-rate normalisation in Tokyo and the risk perception of Türkiye operate at the same time.

For companies with foreign-currency debt, the question is therefore this: if the CBRT cuts rates while U.S. Treasury yields remain high, Japanese rates continue to rise and Türkiye’s CDS spread increases again, what will our company’s true borrowing cost be?

References

1. U.S. Department of the Treasury. Daily Treasury Par Yield Curve Rates, 2026. https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?field_tdr_date_value=2026&type=daily_treasury_yield_curve
2. Federal Reserve. FOMC Statement, 29 July 2026. https://www.federalreserve.gov/newsevents/pressreleases/monetary20260729a.htm
3. Federal Reserve Bank of New York. SOFR Averages and Index. https://www.newyorkfed.org/markets/reference-rates/sofr-averages-and-index
4. Ministry of Finance Japan. 10-Year JGB Auction Results, 6 January 2026 and 1 September 2026. https://www.mof.go.jp/english/policy/jgbs/auction/calendar/eresul/eresul20260901.htm
5. Bank of Japan. Statement on Monetary Policy, 31 July 2026. https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260731a.pdf
6. Central Bank of the Republic of Türkiye. Financial Stability Report, May 2026. https://www.tcmb.gov.tr
7. Central Bank of the Republic of Türkiye. Monetary Policy Committee Meeting Summary, July 2026. https://www.tcmb.gov.tr
8. International Monetary Fund. Global Financial Stability Report, April 2026. https://www.imf.org/en/Publications/GFSR
9. Bank for International Settlements. Financial conditions in a changing global financial system. https://www.bis.org