Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Macro Strategist
The rout in the Turkish lira has worsened over the last couple of sessions; the currency is down another 1.5% and more today on top of similar losses yesterday versus the greenback. USDTRY has hit a new all time low at 4.66 to the USD in today’s trade.
Adding to the negative sentiment today was a Fitch warning that Turkey’s debt could be in for a downgrade on the other side of the June 24 presidential election if this leads to the Ankara government threatening central bank independence. In recent weeks, Erdogan – seen an easy victor in that election – has explicitly warned of political involvement in setting interest rate policy.
The wait until the election seems unbearable as it is over a month away and investors may fear drastic measures to stem the outflow of capital. Turkey’s credit spreads have vaulted wider far more quickly than other emerging market peers recently and continued to worsen over the last week or more even as the outlook for other EM’s improved slightly, as we covered in our most recent EM FX Weekly publication.
The next regularly scheduled Turkish Central Bank meeting is more than two weeks away on June 7 and it is hard to imagine the central bank can maintain silence until then at the current pace of TRY devaluation (spot exchange rate has declined some 20% versus the USD since March and the pace of depreciation accelerated over the last two to three weeks). Without firm central bank action and/or reassuring words from Erdogan, an ongoing negative spiral in TRY is a prominent risk for the near term.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)