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10 August 2018 by jbchevrel

Turkey was under pressure today again, with the 5y CDS wider c70bp and $TRY up c16%. The YTD moves are quite impressive: c270bp on the 5y CDS and c70% on $TRY. Today’s selloff was amplified by low liquidity and occurred in three steps, before reverting partly towards the end of the session. Firstly, overnight, the FT reported that the ECB was concerned over some Eurozone banks exposed to Turkey (namely UniCredit, BBVA and BNP), given the recent plunge in the lira. Secondly, Erdogan gave a hawkish speech, calling people to convert USD/XAU back into TRY. Thirdly, Trump authorized steel & aluminium tariffs to be doubled for Turkey. Beyond Turkey, this sparked a risk-off sentiment throughout the session and across markets. EM was logically hit the hardest (CDXEM +16), but European risky assets also repriced (Main +3.8 XO +10 SX5E -2%), with financials underperforming (SnrFin +6.2 SX7E -3.2%). The US market was surprisingly resilient, before leaning more risk-off (SPX -0.8% CDX IG +2.8) after the European close.