The Daily Update - Turkey Turning up the Heat, NFP

While we wait for today’s U.S. payrolls release we thought we would have a look at Turkey. Unfortunately, or fortunately, depends on your point of view Turkey is not in our mandate as it is only a two star country and rated Ba2. But for those investors that like to experience ‘life on the wild side’ Turkey has moved to levels in both bonds and currency which justifies investigation.

Starting with the currency the GBPTRY rate is trading at 6.625 this morning which is a fall of 44% since 12 months ago and if you annualise the one month forward rate it comes in at 18% you get paid to buy the Lira putting the one month forward rate for GBPTRY at 6.70. This is not a recommendation as most of us would have to think seriously before standing in front of a runaway train, however, this is getting interesting, and with US sanctions widely known about, key appears to be if all the bad news is already in the current pricing.

Likewise in the bond market, the government issued local currency lira bond the 11% maturing 02/2027 is down 36 points in price over the last 12 months and is now at a price of around 67.50, a yield of 18.70%. The US dollar issue the 6% maturing in 3/2027 has also fallen in price and now yields 7.54% which is about 442bp over the US Treasury curve, at a price of 90.60 which is down 18 points over the last 12 months.

If sleeping at night is preferred, watch and wait, although who can sleep in the current heatwave; a little more heat from Turkey could be the trade of the summer.

Onto Non-Farm Payrolls, which has just been released at +157k for July with the two months net revision at +59k and the all-important Average Hourly Earnings at 0.3% putting the year-on-year at 2.7%. Overall, on balance, the report is as expected still showing a rather strong employment position, while the unemployment rate is at 3.9% down from 4% as widely expected.

The UST yield curve has so far had limited activity with a slight flattening bias; broadly after a week of the Fed meeting and a NFP report which is much in line, little reaction so far, back to focus on trade wars into the weekend.

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