lochaz-index wrote:[quote=lochaz-index]Some EM pain for Turkey via capital flight and CB's indecision.
Quote:The central bank announced it would keep its headline interest rate steady at 17.75 per cent even as annual consumer price inflation reached 15.4 per cent in June — more than triple the official target
Turkish lira has lost almost 30% YTD
Quote:The embattled lira plummeted following the announcement, falling as much as 4.2 per cent before recovering slightly to 4.87 to the dollar at the end of the European trading day.
Interest rates are soaring
Quote:The yield on the nation’s 10-year bond surged 184 basis points to 18.67 percent.
Well that escalated fast.
Quote:Turkey is just the latest developing economy to plunge into chaos. The Turkish lira has shed more than 40% since January, while the country's stock market has been cut in half
European and Turkish banks are staring at humongous losses not to mention the government is in a real pickle as management of borrowing costs and deficits was heavily dependent on capital inflows.
Quote:The turmoil follows a similar currency crash in Argentina that led to a rescue by the International Monetary Fund. In recent days, the Russian ruble, Indian rupee and South African rand have also tumbled dramatically.
The contagion cuts through the EM giants like a hot knife through butter with the notable exception of Chinese yuan. The South African rand in particular is yet to see the dark side of the moon - my money is on them to have the roughest ride for a two year window.
The Turkish meltdown is causing quakes for European peripheral economies with Italy demanding QE infinity to support their fledgling markets and suppress their borrowing costs.
Quote:As confidence in Erdogan and the Turkish currency drops, European banks that lent money in Turkey are beginning to worry about whether they can recover their loans. And analysts say this currency problem, coupled with rising interest rates in the U.S., are scaring investors off other emerging economies.
Beyond the financial realm, some interesting geopolitical developments, is NATO dead?
Quote:Earlier this month the longtime NATO members engaged in a heated exchange of sanctions and threats of retaliation. Not long after that, President Trump said his administration would be doubling its tariffs on Turkish steel and aluminum — raising the levies to 50 percent and 20 percent, respectively, and helping encourage the lira's free fall Friday.
Beyond geographic considerations, Turkey has been a key partner in the fight against ISIS, a militant group that has staged attacks within its borders, and it is a rare Muslim nation that has diplomatic relations with Israel, another U.S. ally. Turkey has also been hosting more than 3.5 million Syrian refugees who might otherwise be traveling to Europe or the U.S.
Looks like a dog fight in the making and the IMF is going to have one bumper of a season.
https://www.npr.org/2018...-between-u-s-and-turkey
https://money.cnn.com/20...wCNNi&utm_term=link[/quote]
Interesting...
The Turkey 10Y Government Bond has a 20.460% yield.
10 Years vs 2 Years bond spread is -471 bp.
Central Bank Rate is 17.75%.
The Turkey rating is BB-, according to Standard & Poor's agency.
Current 5-Years Credit Default Swap quotation is 513.26.
possunt quia posse videntur