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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EMERGING MARKETS
- Credit default swaps have surged in both Russia and Turkey today, both for differing reasons. In Russia, non-acceptance of its security proposals has seen a material rebuild in geopolitical risk premia – sending the 5Y CDS +12bp higher and beyond the September 2020 highs.
- This unwinds some positive progress made by both sides to create a dialogue and bring us no nearer to a de-escalation in tensions on the Ukraine issue. Proposals were too onerous on NATO and leaders will be unlikely to provide such concrete guarantees at this stage. Overall, we can likely expect more sabre-rattle ahead.
- In Turkey, the 5Y CDS has risen +45bp today alone following yesterday’s CBRT meeting where rates were cut a further 100bp to 14.00%. Acute TRY weakness and the reality of the impending surge in inflation and the CBRT’s deeply negative net reserve position set against already deeply negative real yields has sparked major concerns of a deepening crisis in Turkey.
- FCY debt stands at over 60% of total gross debt and continues to increase in line with TRY weakness, making corporates with inverted balance sheets increasingly vulnerable on the debt side, not to mention government risks to USD liabilities.
- Since early November the 5Y CDS has risen +173bp and has now officially reached 2018 levels, with the next resistance points at 600 & 635 respectively. Turkey’s acute BOP problems continue to compound, while CBRT credibility sits at an all-time low. Here, authorities must address these issues by re-establishing positive real rates and bring about a more stable economic environment to attract sustainable FDI flows to stem the decline.
- However, with a CBRT hamstrung by Erdogan’s unconventional policy demands for low rates, this represents a significantly challenging task. With Inflation headed towards 25-40% in 1H22, the CBRT would need to make some drastic hikes to reassert CBRT credibility and bring about FX stability – something that would crush Erdogan’s 2023 re-election campaign.
Russia 5Y CDS
Turkey 5Y CDS
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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