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Morning Commentary: Turkey widens as investors parse coup attempt; EM technicals remain firm
By Paul A. Harris
Portland, Ore., July 18 – Turkey dominated headlines on Monday as investors sift headlines related to last Friday night’s attempted military coup.
Turkey’s foreign exchange and credit default swaps were pushing wider on Monday, with five-year CDS trading at a 253 basis points bid, a trader said.
With the coup having failed, and the Central Bank of the Republic of Turkey coming in to support the market, the currency retraced most of its backward move, a market source said.
Among corporates, the new Yapi ve Kredi Bankasi AS (Yapi Kredi)’s 4½% notes due July 19, 2023, which investors were chasing prior to the coup, were among the corporates under pressure. Investor were feeling that prior to the volatility, the notes’ valuation was already stretched.
Among corporates that were mentioned, Koc Holding AS’ 3½% notes due 2020 were 99.62 bid, 100.62 offered, while the 5¼% notes due 2023 were 102¾ bid, 103¾ offered.
The Arcelik AS euro-denominated 3 7/8% notes due 2021were 102.38 bid, 103.28 offered. The dollar-denominated 5% notes due 2023 were 98.60 bid 99.60 offered.
There was relentless selling in Turkish bank paper, exacerbated by rich pre-coup prices, a trader said, adding that there seemed to be little interest in buying the dip.
Turkish banks were around 40 bps wider on the European morning, the source said.
Meanwhile emerging markets technicals remain firm, with accounts seeing cash inflows; however, in the past two to three weeks accounts were covering underweights, a market source said, adding that the latest headlines probably provide an incentive to stay underweight in the asset class.
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