Numerous questions about TRY today and @jnordvig did a good job raising some but lacked charts.
So the thing is. This year foreign liabilities were getting better but this month we had a bit of a drawdown.
And when that happens well the currency takes a dive every time.
And the thing is, since 2018, foreign liabilities have grown exponentially.
To MMT people, that's what happens when you don't control your currency. Funny stuff happens. But I'm sure Erdogan will give everyone a pony.
Thing is it's better if you have yields which make it attractive. And usually that's what the CBRT did. Make it more appealing for your creditors.
But Erdogan wants rates lower.
...the problem is the market doesn't believe in what Erdo wants and implies he's going to have to raise rates.
I imagine Erdo feels like Jean Valjean chased by Javert.
Well if he didn't hate the French that is.
Anyway the market wants to be paid for the risk.
And sometimes the CB could fight this but at the moment its creditors are asking for some actual money back.
The CBRT got money from various people and they need it (you know, to pay those pesky foreign liabilities).
And now threal reserves are back in negative territory.
The final issue is that in the last few years Erdo annoyed the French and Americans (big creditors) with some fun stuff like banning trades. Which means nobody believe they can actually trade and roll them over (bit like Soros shorting GBP but faced with a hefty T/N fwd).
Do people want to sell put vol? Hell yeah, come on its too juicy to leave alone.
But do I want to buy vol? For what? To be told I can't hede cause my PB can't book the trade?
Hence why TRY is exploding at the moment.
Sadly it's becoming another ARS.

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More from @pauleluard

25 Oct
Couple charts I think are interesting. First is that LA ports are unloading small ships and wait is now around a month to unload from anchoring.
Scarcity effect will continue for some time given that backlog.
We have the Survey of Professional Forecasters next month and the revisions are likely to pick up at least 10bp for 22 & 23.
That will go into the FOMC SEP.
We're pricing a lot for the Fed but there is still scope for front to steepen.
Read 5 tweets
8 Oct
Couple points on NFP print
1) Women's non white labor force not picking up which might be a daycare problem and as such the supply problem is still there.
Which means more job switching, higher quits and more scope for wages to continue higher.
2) Seasonal Adjustments which have a massive impact this month on the Hospitality sector with NSA -413k and SA +74k. My seasonal adjustment gives me +154k. Not a massive adjustment but it's more in line with the ADP data this month (which was outlier for L&H)
3) Wages increases were concentrated in the medium wage categories which means there is some contagion of low wages hikes (which are still seeing strong hourly earnings increases) to the medium wages.
Read 4 tweets
11 Aug
Couple things on CPI. First team transitory/reopen wins and it's just fair.
Still some fair hikes in love motels but overall its calmer.
What I find interesting is shelter rent though.
First because we have a continuation of the "cheap states" inflation.
Detroit continues to rise.
Driven once more by the nice stuff.
Thank you Blackrock.
One thing to keep an eye on is the fact that OER (which is biggest weight) is going much faster than Rental.
And that is starting to feel a touch odd to say the least.
Read 5 tweets
13 Jun
As rates continue to rally I'm starting to worry we might get some more pressure in EUR rates.
There's been decent unwind of shorts in USD and some decent reduction in EUR this week.
Trend Followers have had similar momentum with decent buying of govies (and selling of commodities).
What's even more striking at the moment is that they have now moved into USD 5s30s flatteners.
And they have reduced their EUR steepener extensively.
Read 7 tweets
1 Jun
A couple recent studies in the US which make me believe the OER rise will not be as bad as we believe despite a red-hot housing market.
First is the NBER study looking at where people moved during COVID.
They didn't go far and ended at the periphery of the city rather than move to smaller cities/towns.
The other is a blog post by Corelogic about how rents have evolved in Covid time.
Seems it is rents from "detached" housing which has seen the rises.
Which would make the link with people moving to the "donut" of the large cities.
Read 5 tweets
29 May
So a milestone has been reached.
It feels weird as I still struggle with the idea so many people could be interested in what I have to say.
In a sense it is very humbling.
So maybe time for a couple background items.
I’n obv French (from the wine selection) and from the western region of Brittany.
Is there any reason to be proud? None. But nonetheless I do feel it is my home and love this land of mine.
I studied engineering in a grande ecole and finance. Amusingly I was specialising in AI before we called it such (optimal control).
Everything is a min max problem. Or a tropical algebra.
Read 15 tweets

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