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09 November 2020 by jbchevrel

Turkey CDS outperformed the rest of the complex today. The 5y spread is tighter by -62bp. In FX space, the lira rallied by roughly +5%. This price action came after Berat Albayrak, the son-in-law of Turkish President Erdogan, unexpectedly resigned as the country’s Economy & Finance minister (MoF), one day after the CBRT (central bank) governor was fired. Murat Uysal was replaced by Erdogan with former MoF Naci Agbal. Paradoxically, this was a relief for foreign investors. Investors didn’t focus on the turmoil created, but preferred to draw a path to economic orthodoxy, which could be seen post Albayrak. The official reason for his departure may have softened things as well: Albayrak cited unspecified health reasons for his decision to step down. Health issues and spend more time with his family (he posted this on InstaGram…). However in Turkey, it is questionable which impact the Economy & Finance minister and CBRT Governor actually have. President Erdogan has often reasserted his total control over both institutions, over the past few years. That had fuelled the stress period now known as the ‘lira crisis’ in August 2018. President Erdogan dislikes high interest rates, allegedly for religious reasons, he even previously said high interest rates were the driver of inflation. Adding to the mix the geopolitical tensions that oppose Turkey to the EU (Greece, France), Russia and the US, it is unclear whether this outperformance (today: Turkey CDS -62bp CDX EM NAV -20bp) has a lot more to go.