Inflation expectations, spreads, Turkish Eurobonds

While inflation expectations are rising in the US; both 2-10 and 5-30 spreads approached last week’s lows. UST 2Y yield rose 1bps to 0.44%, while the much-watched UST 10Y yield fell 2bps to 1.61%. While 10-year US yields tested 1.70% last week; Investors are assessing the possibility that the Fed will be determined enough to start the next cycle of rate hikes in November. The possibility of a rate hike in 2022 may lead to the preservation of the upward trend on the short-term side of the yield curve. The spread, which is between German bund yields, will be important, as will the possibility of the Fed quickly raising rates. The 10-year German bund yield is at -0.12%. The economic calendar will show 3Q21 GDP readings tomorrow and Friday also the Fed’s preferred inflation indicator, the PCE for September. At tomorrow’s MPC, however, the ECB will likely start laying the foundations for major decisions to be made in December on asset purchases. The ECB will likely continue to view risks to the economy as “generally balanced”.

The fact that the diplomatic crisis was left behind by softening statements after the demand for the expulsion of 10 Western ambassadors from the country seems to have relieved the markets. After the CBRT’s last 200 basis points rate cut, we see an upward trend in benchmark rates in an environment where inflationary risks seem intense and fluctuations stemming from the lira increase the current risk potential. Attention turned to the Inflation Report, which will be released on Thursday, where the Central bank will revise its forecasts and take questions from the press. In the perspective of the current monetary policy path and the reductions made by state banks in loan rates, we think that the desire for monetary easing will continue.

Yapı Kredi receives a 367-day syndication loan in 2 tranches worth 360.5 million USD and 396.5 million EUR. Slices cost Libor+2.15% and Euribor+1.75. The agreement, in which 38 financial institutions from 19 countries participated, will use its revenues to finance international trade.

The curve consists of fixed rate Turkish government bonds denominated in US dollars. Bonds are selected according to the current nominal maturity closest to the specified maturity. (Source: Bloomberg, Ministry of Treasury and Finance)

The curve consists of US Treasury active securities in US dollars. 1-month, 3-month, 6-month and 1-year maturities are the most recently auctioned 4-week, 8-week, 13-week, 26-week and 1-year US Treasury bills. 2-year, 3-year, 5-year, 7-year, 10-year and 20-year maturities are the most recently auctioned US Treasury bonds. The 30-year maturity is the most recently auctioned 30-year US Treasury bond. The curve is updated on each auction day with the validity date of the next market day. (Source: Bloomberg, US Department of Treasury)

SELECTED COUNTRY REAL INTEREST GRAPHS

Real Interest (Inflation-Adjusted Interest Rate) is obtained by deducting the inflation rate from the nominal interest rates of the relevant countries. Central bank rates and current inflation rates are used in our chart to make Turkey’s current inflation outlook comparable to that of other countries. (Source: Bloomberg)

SELECTED COUNTRY 5yr CDS GRAPHS

CDS (Credit Default Swaps) shows the perception of market players regarding the risk premium of the relevant country. The higher the CDS, the higher the risk in the country’s assets. (Source: Bloomberg)

SELECTED CURRENCY TYPES 1 WEEK IMPLIED VOLATILITY GRAPHS

The 1-Week Implied Volatility Chart shows market players’ perception of the relevant currency pair. It is accepted that the derivative products of the instrument with increased implied volatility are priced more expensive and the risk premium of the related instrument increases. (Source: Bloomberg)