Turkey’s slide continues; Turkish banks plunge another day; Argentina underperforms LatAm

By Rebecca Melvin

New York, Aug. 13 – Turkey’s financial situation continued to deteriorate on Monday with the lira dropping another 10% on the day to 6.9 to the U.S. dollar but pulling back some from a drop to as low as 7.24 overnight.

Turkish bank credits plunged for a second straight day. Akbank Turk AS’ 7.2% notes due 2027 were bid last at 58, which was down more than 10 points from earlier Monday trades at 68.5. The bonds gapped lower through last week after having traded at the end of July at about 85.

Yapi ve Kredi Bankasi AS’ 6.1% notes due 2023, of which $500 million priced in March, fell on Friday and again on Monday, quoted last at 70 bid, 73.95 offered, which was down from 82.15 at the outset of Monday. A week ago, the bonds stood at almost 88, and in July they were over 90.

Yapi Kredi’s 5.85% notes due 2024 were last quoted at 68˝ bid, 70.40 offered, which was down from 76.30 at the start of the day and at 83 a week ago.

“Turkish banks really under pressure all session,” a London-based trading source said. There are 17 Turkish bank bond issues denominated in U.S. dollars.

Selling in Turkey’s lira, bonds and stocks left the nation last week in crisis, and the potential for a debt default was looking increasingly likely on Monday, according to market sources.

The meltdown affected other emerging market currencies and debt as well. South Africa and India’s currencies fell notably. Spreads on bonds in most of the Central & Eastern Europe, Middle East & Africa region were wider.

But trading was subdued as the market remained painful but illiquid, the trader said.

Elsewhere, Argentina, which saw the yield on its 10-year bonds bid at 10% early Monday, and Brazil was notably lower, a New York-based market source said.

Argentina’s yield was up from a rise to 9% last week from 8.3% at the end of July. Last week’s move was prompted by headlines regarding a domestic corruption investigation against some top Argentina businessmen.

The lira pulled back to 6.9 lira per dollar and was hovering around 7 on Monday, which was down nearly 10% since Friday. Turkey’s central bank announced measures that were widely viewed as not strong enough, including meeting banks’ lira liquidity needs at the overnight rate of 19.25%, which is 150 basis points above the benchmark weekly repo rate. The central bank said this was its first step.

A week ago, the lira fell 5.5% to 5.46, which was the record low at that point.

“Overall [this is] a risk-off day led by news/developments out of Turkey, which is underperforming versus the rest of EM in both foreign exchange and credit,” the New York-based source said.

Argentina is testing fresh yield highs, pulled by Turkey and its own domestic developments that are putting pressure on risk assets. In addition to the corruption investigation, there is a large Lebac bond maturity this week that is intended to be rolled over, the source said.

Meanwhile, the rest of foreign exchange across the Latin America region was stable to unchanged. Low-beta names stood largely unchanged. But Argentina and Brazil were moving wider in spread on the back of negative sentiment toward emerging markets.

“I see Argentina opening 20 bps wider in spread and Brazil about 10 bps,” the source said.

When Argentina suffered a currency meltdown in May it took actions such as raising its interest rates to 40%, the world’s highest rate, and sought International Monetary Fund support, ultimately inking a $50 billion IMF backstop, which was the world’s largest IMF bailout, in June.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.