In Turkey's ongoing attempt to crush currency manipulators, yesterday we reported that in addition to launching a probe against JPMorgan and threatening "Manipulators", on Monday Turkish authorities took a page of the Chinese currency manipulation playbook, when they made it virtually impossible for foreign investors to short the lira even as they soaked up virtually all intermarket liquidity, potentially threatening to kill the economy.
As we reported yesterday, the overnight swap rate on Monday soared more than ten-fold over the prior two sessions to more than 300%, the highest spike on record going back to the nation's 2001 financial crisis as offshore funds clamoring to close out long-lira positions failed to find counterparties and the cost of a lira short exploded.
For any fund that has any Turkey exposure, VAR levels will now have shifted significantly.
The situation in Turkey has not evolved suddenly and it's unlikely that any but dedicated EM funds have much exposure.
Unable to express their negative views on the economy via the currency - for now - Turkey bears have found a different way of betting on a Turkish economy implosion, namely Credit Default Swap, which soared to 454bps on Tuesday, a 40bps spike, and the highest since last summer's crisis.
Of course, Eedogan's vendetta against the shorts, and the elimination of virtually all liquidity just to force an FX squeeze, means that the broader economic slowdown and raging inflation, which is the true reason behind Turkey's simmering crisis, is about to get much worse.
With local banks burning through reserves to defend the currency on the front-end, and with shorts no longer present, it is only a matter of time before the currency collapses once more, only this time driven not by a flood of shorts but as longs capitulate ahead of what increasingly looks like another Turkish crisis.
https://www.zerohedge.com/news/2019-03-27/turkey-verge-collapse-overnight-swaps-hit-700-cds-soar
As we reported yesterday, the overnight swap rate on Monday soared more than ten-fold over the prior two sessions to more than 300%, the highest spike on record going back to the nation's 2001 financial crisis as offshore funds clamoring to close out long-lira positions failed to find counterparties and the cost of a lira short exploded.
For any fund that has any Turkey exposure, VAR levels will now have shifted significantly.
The situation in Turkey has not evolved suddenly and it's unlikely that any but dedicated EM funds have much exposure.
Unable to express their negative views on the economy via the currency - for now - Turkey bears have found a different way of betting on a Turkish economy implosion, namely Credit Default Swap, which soared to 454bps on Tuesday, a 40bps spike, and the highest since last summer's crisis.
Of course, Eedogan's vendetta against the shorts, and the elimination of virtually all liquidity just to force an FX squeeze, means that the broader economic slowdown and raging inflation, which is the true reason behind Turkey's simmering crisis, is about to get much worse.
With local banks burning through reserves to defend the currency on the front-end, and with shorts no longer present, it is only a matter of time before the currency collapses once more, only this time driven not by a flood of shorts but as longs capitulate ahead of what increasingly looks like another Turkish crisis.
https://www.zerohedge.com/news/2019-03-27/turkey-verge-collapse-overnight-swaps-hit-700-cds-soar
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