20171031-法国巴黎银行-Morning_Meeting_Notes_8页_430kb

EM STRATEGY | TURKEY DESKNOTE Summary

Core Content

This document provides a strategic outlook for the Turkish economy and financial markets, focusing on the Treasury's annual financing program, inflation trends, and market dynamics for the period of October 2017 and beyond. It is produced by Turk Ekonomi Bank A.S. and authored by H. Erkin Isik, CFA, who is a FX & IR CEEMEA Strategist based in Istanbul.

Main Points

1. Treasury's Annual Financing Program

• The Treasury will release its annual financing program on 31 October 2017.
• Domestic Debt Rollover Ratio: Projected to rise to 131% in 2017, up from 91% in 2016, and is expected to remain around 127% in 2018 if the cash account is not used.
• External Debt Rollover Ratio: Increased to 94% in 2017 from 60% in 2016, and is expected to stay at 94% in 2018.
• Eurobond Issuance: The Treasury has already issued USD 9.1bn of eurobonds, exceeding the initial target of USD 6.0bn, and is expected to issue USD 1bn more by year-end.
• Total Financing Needs: Projected to increase from TRY 140bn in 2017 to TRY 154bn in 2018, with TRY 113bn allocated to domestic debt redemption and TRY 41bn to external debt redemption in 2018.
• Non-Borrowing Resources: Turned negative to TRY 22bn in January-September 2017, against an initial projection of TRY 16bn surplus. This is expected to remain at a deficit of TRY 28bn in 2018.

2. Inflation Outlook

• October CPI Inflation: Forecast at 2.0% m/m, which would push the annual inflation rate to 11.8% y/y.
• End-Year Inflation Forecast: Remains at 9.8%, but recent TRY depreciation may add at least 1 percentage point to inflation in the fourth quarter, making it likely to end the year around 11%.
• Inflation in 2018: Projected to decline to 9.5% in the first quarter of 2018.
• CBRT's Inflation Report: Expected to maintain a single-digit inflation forecast, likely around 9.5%, and revise the end-2018 forecast to 7.0%, which is below the long-held forecast of 8.8%.

3. Market Overview

• Foreign Exchange Market: USDTRY spot rate is 3.7774, with a -0.3% daily change and +0.9% weekly change.
• Forward Rates: Implied rates for 1m, 3m, 6m, and 1Y show slight declines and increases, indicating market expectations of continued TRY depreciation.
• Volatility: ATM volatility for USDTRY is at 12.74% for 1m, with -0.33% daily change and +1.11% weekly change.
• Bond Markets:
  • Local Government Bonds: Prices and yields have declined slightly for 2Y, 5Y, and 10Y bonds.
  • Sovereign Bonds: Prices and yields are also down, with the 10Y bond yielding 5.87%.
  • Corporate Bonds: Prices and yields vary, with the 5Y bond yielding 5.26% and the 10Y bond yielding 4.44%.
• Yield Curve: The government bonds yield curve is presented, showing the current yield levels for various maturities.
• REER (Real Effective Exchange Rate): Daily REER is shown to reflect the relative value of the TRY against a basket of currencies.

Key Information

• The domestic debt rollover ratio is expected to rise in 2017 due to higher fiscal spending and a larger cash account.
• The external debt rollover ratio is increasing, indicating a more significant reliance on foreign currency borrowing.
• The TRY depreciation is expected to significantly impact inflation in the fourth quarter.
• The CBRT is likely to maintain a single-digit inflation forecast for the end of 2017 and revise the end-2018 forecast upwards.
• The Treasury's financing needs are rising, and the use of the cash account may reduce the rollover ratio but exposes the government to global risk sentiment.
• The bond market is experiencing lower prices and yields, reflecting market concerns about inflation and currency depreciation.

Table of Key Figures (Table 1)

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