Turkey Offshore Lira Rates Plunge
Turkey Offshore Lira Rates Plunge
(Bloomberg) -- Turkish lira funding costs tumbled on Thursday from the highest level in almost two decades after investors offloaded the nation’s assets in a bid to exit currency trades they’ve been unable to close all week.
The overnight swap rate sank back to 25 percent on Thursday after measures designed to curb short-sellers before elections drove it to a high of more than 1,300 percent as liquidity in the offshore market evaporated. While local banks are still keeping a lid on lira funding, foreign investors have been able to access the currency by selling holdings of Turkish bonds and equities, according to three bankers with knowledge of the matter.
The swap market is one of the biggest sources of Turkish lira funding for money managers trading the nation’s assets and the squeeze didn’t just cripple investors trying to bet against the currency, but also those who had sold dollars and bought liras. That’s because many of them had then lent out the local currency via short-term swaps to benefit from a juicy interest rate, then suddenly found themselves unable to get the funding needed to reverse the trades.
The most severe bout of market turmoil since Turkey’s August crisis was triggered on Friday after a drop in central bank reserves and a recommendation to short the currency by JPMorgan sent the lira down more than 5 percent. That raised concerns that the money that had poured Turkey to take advantage of the central bank’s 24 percent benchmark rate would flee, hammering the lira before municipal elections on Sunday.
While the the measures helped stem the lira’s rout, bond and stock markets took a big hit. The Turkish 10-year government bond fell for a fifth day, pushing the yield above 19 percent on Thursday, the highest level since October. The Borsa Istanbul 100 Index slid as much as 10 percent in the week.
The currency was trading 3.9 percent lower at 5.5423 per dollar as of 2:11 p.m. in Istanbul on Thursday. The recent exchange rate swings are due to “operations by the U.S. and the West to corner Turkey,” President Recep Tayyip Erdogan said in a meeting with young people broadcast via social media.
To contact the reporters on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net;Asli Kandemir in Istanbul at akandemir@bloomberg.net
To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Dana El Baltaji at delbaltaji@bloomberg.net, Alex Nicholson
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