The Daily Update - USDTRY free fall

Yesterday the Turkish Lira fell to record level against the US dollar amid the ongoing diplomatic spat with the US over the American pastor Andrew Brunson resulting in the US government’s threat to review Turkey’s duty-free access to the US market. A move that could threaten nearly USD 1.7bn of Turkish exports. The lira fell 6% at one point touching 5.4222, before recovering slightly to 5.25 (at time of writing). Year to date the currency has plunged nearly 27%. Turkish government bonds also slid to record yields, with the 10 year trading at close to 20%. The iShares MSCI Turkey ETF also tanked, dropping nearly 7.5%, and traded at under USD25.

The selloff comes after it was reported that a delegation of Turkish diplomats will be heading to Washington to try to defuse the ongoing quarrel between the two counties. Over the last few months the relationship between them has worsened over differences due to Syria, however, mainly over the arrest and trial of U.S. pastor Andrew Brunson. Last week, Washington imposed sanctions on President Tayyip Erdogan's justice minister  Abdulhamit Gul and interior minister Suleyman Soylu, saying they ‘played leading roles in the organizations responsible for the arrest and detention of Pastor Andrew Brunson‘. Erdogan said that Turkey would retaliate by freezing assets of the U.S. interior and justice ministers in Turkey ‘if they have any’.

As we have mentioned before, although to some, at these levels investors might be willing to ‘dip’ their toes, we would not do so, no matter how enticing it may look. Firstly due to the fact that Turkey is only has a 2 star NFA position, so would be rejected, but also, we can find expected returns including yield, above 16%, elsewhere in our investable universe of far better credit quality.

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