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Kind Reminder

13 September 2018 by jbchevrel

TURKEY 5y CDS was slightly tighter in London AM, until Erdogan said 'we should cut this high interest rate'. That sent TURKEY wider +25bp, less than two hours before the rate decision. Funnily enough, he quickly reminded that this was only his view and that the central bank (CBRT) was still independent… Slightly after noon, the CBRT hiked its 1w repo rate by 625bp, while the consensus was expecting 325bp. The effective hike is closer to 475bp than 625bp, because the 1w repo facility is shut (only the o/n one works), but that was enough to send $TRY 7% lower. The softer-than-expected US CPI and the non-eventful European central banks’ meetings helped that move to consolidate in London PM. The 5y CDS closed -55bp on the day, -80bp from the intraday top. That is a strong improvement for Turkey in the near term, but that is only the monetary side of the equation. On the fiscal side, we should get the medium-term programme delivered by the government before the end of SEP. That development saw CDXEM tighter -13bp, while the skew kept in the range, consistently with other recent ample Turkey-led moves we have had (especially at the beginning of AUG). The rest of the EM complex followed suit, especially SOAF (-15), the most correlated one. The outlier was LEBANON (+20), as market-makers got lifted in the short end.