巴黎银行-新兴市场-投资策略-土耳其：货币曲线陡峭得令人难以置信-20180319-10页_476kb

Summary of EM Strategy Desknote: Turkey - Too Steep to Be True

Core Content

This document from BNP Paribas provides an analysis of the Turkish Lira (TRY) depreciation and its implications for the cross-currency (CCY) curve and monetary policy in Turkey. It outlines the current state of the TRY, the reaction of the financial market, and the recommended strategy for investors.

Key Observations

• TRY Depreciation: The TRY has been depreciating faster than forward rates predict, marking the sixth consecutive day of losses. One-week realised losses are at -2%, which is the worst performance since July 2017.
• CCY Curve Steepening: The steepening of the TRY CCY curve, particularly around the 1-year point, reflects market expectations of tighter monetary policy. The 3m-12m rates differential has widened to over 125bp.
• Feedback Loop: The steepening of the CCY curve may temporarily slow down FX depreciation, but this is expected to be short-lived. As the curve flattens, the depreciation pressure is likely to return.
• Inflation Outlook: Inflation expectations have worsened, with 24-month inflation expectations at 8.31% and 12-month at 9.24%, both above the CBRT's target range. This is expected to further pressure the currency.
• Carry Trade Positioning: Offshore investors have significantly increased their carry trade positions, with cumulative inflows reaching USD 32bn since 2017, close to the previous peak. This suggests a high level of speculative exposure to the TRY.
• REER at Low Levels: The Real Effective Exchange Rate (REER) has reached a low of 82.5, similar to levels seen in November 2017. This may prompt the CBRT to take action, potentially leading to rate hikes.
• CBRT Policy Response: The CBRT is likely to delay rate hikes and instead use alternative measures like FX forward auctions, which may not be as effective as rate increases in stemming depreciation.

Strategy Recommendation

• Flattener Position: Own a 1m fwd 3m x 9m TRY CCY flattener at 95bp, targeting 50bp, with a stop loss at 115bp.
• USDTRY Call Option: Retain the USDTRY 3m call option to position for a possible "burst of dependence" and extended sell-off in the TRY.
• Expectation: The current steepness of the curve may not be sustainable, and a flattening could lead to renewed FX depreciation.

Key Points

• The steepening of the CCY curve is a market reaction to uncertainty about the CBRT's policy response.
• Carry trade flows are a significant factor in the TRY's depreciation, and they are unlikely to reverse soon.
• The CBRT may need to increase rates to stabilize the currency, but this is not expected to happen immediately.
• The inflation outlook is deteriorating, and the depreciation of the TRY is likely to worsen the inflation problem.
• The REER has reached a low, which could prompt the CBRT to take more aggressive policy measures.

Contacts

Strategist	Job Title	Legal Entity	Phone
Wike Groenenberg	Head of Emerging Markets Research, CEEMEA & APAC	BNP Paribas London branch	44 20 7595 8746
Marcelo Carvalho	Head of Emerging Markets Research, Latam	Banco BNP Paribas Brasil S.A. (Sao Paulo)	55 11 3841 3418
Piotr Chwieczak	FX & IR CEEMEA Strategist	BNP Paribas London branch	44 20 7595 8715
Sai Ulluri	FX & IR CEEMEA Strategist	BNP Paribas London branch	44 20 7595 1872
Erkin Isik, CFA	FX & IR CEEMEA Strategist	Turk Ekonomi Bank A.S. (Istanbul)	90 216 635 2987
Mirza Baig	Head of FX & IR Asia Strategy	BNP Paribas Singapore Branch	65 6210 3262
Dawn Kwa	Graduate	BNP Paribas Singapore Branch	65 6210 3263
Altaz Daga	AU/NZ IR Strategist	BNP Paribas Singapore Branch	65 6210 4994
Kun Shan	China Strategist	BNP Paribas China Limited (Shanghai)	86 21 2896 2773
Tianhe Ji	China Strategist	BNP Paribas China Limited (Beijing)	86 10 6535 0836
Gabriel Gersztein	Head FX & IR Latam Strategy	Banco BNP Paribas Brasil S.A. (Sao Paulo)	55 11 3841 3421
Samuel Castro	FX & IR Latam Strategist	Banco BNP Paribas Brasil S.A. (Sao Paulo)	55 11 3841 3492
Gustavo Mendonca	FX & IR Latam Strategist	Banco BNP Paribas Brasil S.A. (Sao Paulo)	55 11 3841 3445

Legal Notice

• This document is non-independent research and is a marketing communication.
• It is not intended as investment advice and does not constitute an offer to sell or issue securities.
• It is subject to conflicts of interest due to the interaction between research and trading activities.
• The information is based on public sources and is not guaranteed to be accurate or complete.
• BNPP does not accept liability for any use of the information or for any loss arising from it.
• The document may include back-tested performance data, which is for illustrative purposes only.
• The information is provided on a confidential basis and should not be distributed without prior consent.

United States Disclosures

• Options: Options are complex and carry high risk; they are only suitable for sophisticated investors.
• ETFs: ETFs have risks including tracking error, currency risk, and credit risk. BNPP may have conflicts of interest.
• Unregistered Securities: Certain securities discussed may not be registered under US securities laws and are not available to all investors.

Online Resources

• BNP Paribas Global Fixed Income Website: www.globalmarkets.bnpparibas.com
• Bloomberg Research:
  • Fixed Income Research: BPFR
  • G10 Interest Rate Research: BPBS
  • Emerging Markets Research: BPFR
  • Market Economics: BPEC

This summary provides an overview of the document's key points and recommendations, highlighting the current market conditions, the strategy suggested, and the legal and regulatory considerations.