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Turkish Assets Diverge as Sentiment Deteriorates

TURKEY
  • Turkish assets have been under pressure this week, exposing their acute vulnerability to the current market conditions and the CBRT’s unsustainable policy mix.
  • TurkGB yields continue to push higher this morning with 2-3Y yields up +13-49bp, going broadly against the trend in EM where countries like SA have seen yields pushing lower prior to and following the hot US CPI print.
  • The lira is also diverging the current trend in EM FX of marginal strength against a choppy USD, reflecting idiosyncratic risks inherent in the economy. USD/TRY has accelerated higher this week after breaching the 15.00 handle, which authorities defended vehemently back in March to try keep dollaristaion at bay. 1Y TRY forward points & the 5Y CDS have also surged in recent weeks towards or past their YTD highs.
  • 1Y TRY Forward Points

  • With real policy rates at -56% (and widening), trade deficit at $8.17bn (and rising) and policy being kept artificially low against the trend of rising rates globally – this makes for extreme headwinds that look unlikely to abate in the medium term without a significant U-turn on policy.
  • Turkey finds itself in a similar position now to the Nov-Dec 2021 period of acute TRY weakness with insufficient reserves to defend the currency, but remaining wedded to its unsustainable policy mix. From here, TRY should continue to underperform its EM peers, while local front end rates surge.
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com

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