Long Turkey 5y CDS

Jaime Vara de Rey Campuzano

• Declining GDP Growth and Increasing Leverage may weaken the already damaged Financial Situation
• Rising debt let the country even more exposed to a likely increase in interest rates

Source: www.worldbank.org
Source: www.statista.com
• Inverted Yield Curve, possibly pointing to continued and aggravated structural economic slowdown
• Rates rised in line with actual and expected inflation

Source: www.worldgovernmentbonds.com 10-Year Gov Bonds Rate. Source: www.statista.com

• Weak and deteriorating credit assessment due to its inability to improve major macroeconomic
indicators
• Less Confidence in the government and tense relationships with Europe (Major Trading Partner)
may trigger a credit downgrade. Outlook currently negative

Source: www.worldgovernmentbonds.com Source: www.worldgovernmentbonds.com

• Exchange Rate at all time low, aimed at improving balance of payments at the cost of reducing flow of
capitals
• Reduced Investor confidence may contribute to interest rate increase

Source: www.finance.yahoo.com
Foreign Reserves: www.tradingeconomics.com
• Turkey Central Bank Assets Continue to Increase to support slowing economic growth and Weak
Balance of Payments
• Inflation rapidly increasing, likely to lead to an even more severe contractionary monetary/fiscal policy

Source: www.tradingeconomics.com Source: www.tcmb.gov.tr

• Purchase 5y Credit Default Swap, betting for a higher Credit Risk
• Weaking Credit Quality, Negative Economic Indicators and Extreme Inflation calling for higher CDS
Values
• Position can be partially hedged by buying 5y Bonds, which are yielding around 19% and have positive
carry for years 5-3.5