Turkey hit by another slew of market setbacks as lira slides further

Turkey hit by another slew of market setbacks as lira slides further
Istanbul's business districts, such as Levent, are feeling the heat again. / VikiPicture.
By bne IntelliNews March 19, 2018

The Turkish lira (TRY) continued to slide towards its all-time low of TRY 3.9608 to the dollar on March 19, falling to TRY3.9382 by the end of the day having started the trading session at TRY3.9235. At one point it weakened to as low as TRY3.9519. Trading also produced a record low against the euro of TRY4.84.

Also showing that investors’ anxieties about economic imbalances in Turkey appear to be mounting up was another increase in the cost of insuring exposure to Turkish debt. Five-year credit default swaps (CDS) hit a new one-month high on a day where Turkish stocks also felt the pressure, falling 0.8%. The swaps rose one point to 178 basis points, IHS Markit data showed.

Turkey is regarded as one of the more vulnerable emerging market economies to higher US interest rates. The Federal Reserve is widely expected to on March 21 push through its first interest rate hike this year. Fears of a Donald Trump trade war are also not helping sentiment.

Other unsightly figures among Turkey’s woes are sticky double-digit inflation and a surge in the current account deficit—on a 12-month sum basis the deficit was equivalent to 6.2% of GDP in January, up from 4.8% of GDP only 12 months ago—while on March 8 Moody’s Investors Service cut Turkey further into junk, saying that the Turkish government—which has injected huge stimulus into the economy since the downturn that followed the July 2016 attempted coup—seems focused on short-term measures, undermining effective monetary policy and economic reform.

On March 14, Capital Economics issued a report warning that the sheer pace of growth in Turkey looks increasingly like a cause for concern and there is mounting evidence that the economy is overheating. 

“There are all the reasons in the world for the lira to weaken,” Vasileios Gkionakis, co-head of strategy research at UniCredit, told Reuters, adding that higher-than-expected inflation prints were putting pressing on Turkish yields.

Turkey’s sovereign dollar bonds fell across the curve with the 2041 issue falling to a fresh 13-month low, down by 0.2 cents to 93.51 cents in the dollar, according to Tradeweb data. The April 2043 issue fell to 80.4 cents, the lowest level since January last year.

The 10-year local government bond yield rose to 12.69%, the highest in nearly four months.

News

Dismiss