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This paper examines how Türkiye’s sovereign credit default swap (CDS) spreads respond asymmetrically to shifts in fiscal and financial conditions following the 2008 financial crisis, employing the NARDL framework. The period under consideration is a time of high economic, political, and social instability, making it an ideal laboratory for analysing the dynamics of CDS spreads, which are a critical indicator in determining Türkiye’s borrowing conditions. The findings are quite striking. In terms of debt dynamics, while CDS spreads widen in response to shocks in either direction, markets price negative shocks to public external debt much more aggressively due to perceived rollover risks. Regarding financial variables, positive shocks act as the primary drivers of CDS premiums, underscoring an asymmetric structure that linear models fail to accurately capture. These findings indicate that sovereign risk of Türkiye is driven less by debt accumulation itself and more by shifts in investor sentiment and fluctuations in global financial conditions. This insight highlights the importance of strengthening market credibility and policy communication, as international financial conditions and global risk perceptions overshadow domestic fiscal balances in shaping country risk.
Aslı Güler (Fri,) studied this question.