17 December 2020 by jbchevrel
Turkey CDS compressed another day, tighter by -16bp here. At 340bp, it stands about 100bp above its pre-COVID spread, having retraced almost 240 basis points, over the past 1.5 month. The market has been encouraged by the prospects of policies shift [both monetary and fiscal] as previously discussed in this blog. The acceleration of the US dollar sell-off after the FOMC meeting and press conference yesterday has definitely been a factor in today’s strength in Turkey CDS. spot FX is now 7.7. the Bloomberg consensus is relatively bullish on Turkey for 2021, with an aggregate forecast of 8 while the forward is implying 9. In terms of data, the current account dynamic is widely expected to remain a drag, for the remainder of 2020. Following a $3.0bn y/y deterioration, the 12-month total current account deficit grew to $34bn (4.6% of GDP) in October. It was mainly driven by services [$3bn] and core goods [$1bn] trade. There was an inflow [$3bn] due to Eurobond issuance in October. The weak services balance could widen the current account deficit to more than 5% of GDP. In the medium, the much-needed return of tourists and of non-resident investments in Turkey could lead to further tightening in both the balance and the CDS, a scenario which seems possible, thanks to the vaccine rollout and the apparent commitment to economic orthodoxy.