In addition to struggling with the ongoing emerging markets rout, Turkey is feeling the pressure from the Syria conflict. The Turkish government is now pushing the US to conduct a Kosovo-style bombing campaign lasting for months.
FT: - “Where is the West? What is it doing? Only talking?” Mr Erdogan asked this week. He also recently rejected the idea of a “24 hour hit and run attack”, which he contrasted with the weeks of strikes in the 1999 Kosovo conflict, the equivalent of which he said would force President Bashar al-Assad from power.Instead of taking the lead on the Syria issue using its military capabilities, a wealthy nation like Turkey wants the US to take care of the regional security problems, as refugees pour across its border. Turkey's markets are under pressure, particularly the currency, which is adding to the nation's urgent call for dealing with the Assad regime.
Turkish liras per one dollar (source: Investing.com)
With the Turkish stock market down considerably, investors want relief - which some believe should come from the US in the form of ousting Syria's current regime. Of course that by no means guarantees that Turkey's regional problems will be resolved (see Libya example).
Borsa Istanbul National 100 Index (source: Bloomberg)
With the upcoming military conflict now a near certainty, markets are pricing in the risk of Turkey's significant involvement (whether or not Turkey wants to be militarily involved.) The combination of rising rates in the US, capital outflows from Turkey, and the Syria situation has forced a significant widening in Turkey's sovereign CDS spread. Investors are on the edge and to the extent they have Turkey exposure, are willing to pay a premium to protect themselves.