Morning Commentary: Turkey improves on central bank’s policy move; most of CEEMEA weaker

By Rebecca Melvin

New York, May 29 – Turkey was outperforming in the Central & Eastern Europe Middle East and Africa region on Tuesday after that nation’s central bank moved to simplify rates to protect the lira.

Turkey’s sovereign curve was called 5 basis points to 10 bps tighter on the day. “It is recovering, but it still has a long way to go,” a London-based market source said.

Turkey’s 6 1/8% notes due 2028 were up 1.4 points at 96.285. Credit default swaps were about 15 bps tighter for five-year protection. The CDS were now at about 245 bps to 250 bps, from 300 bps last week.

The Central Bank of the Republic of Turkey said on Monday that it is completing a simplification of its monetary policy by setting the one-week repo rate as the policy rate, which will be equal to the current funding rate, to be set at 16½% as of June 1.

The lira gained more than 3% against the dollar to 4.6070 following the announcement, from 4.7052 on Friday.

Overall the rest of the CEEMEA space was broadly weaker, but with the spreads of low-beta names wider by only 3 bps to 5 bps while many higher-beta names were wider by 3 bps to 13 bps.

The market was described as “tricky” after a rate swing in the face of weakness in the euro zone’s Italian and Spanish bond space.

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