Turkey On Verge Of Collapse As Overnight Swaps Hit 700%, CDS Soar
In Turkey’s ongoing attempt to crush currency manipulators, yesterday we reported that in addition to launching a “probe” against JPMorgan, the biggest US bank, for daring to cut its TRY price target, as well as threatening unnamed “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 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.
Think Volkswagen short squeeze but for a currency, or FXwagen.
Well, FXwagen went turbo on Tuesday, when this unprecedented move continued as Turkish Lira swaps exploded again, more than doubling overnight, and hitting an insane 700%, with some reporting prints as high as 750%
There was just one problem: whereas on Monday this “shock therapy” meant to force out the shorts did in fact work, sending the Lira soaring, and the USDTRY tumbling, the continuation of this painful squeeze no longer has a positive impact on the currency, where as of this point most of the shorts had already been stopped out. As a result, the USDTRY actually rose for the day, and was up to 5.4272, after hitting 5.3051 on Monday.
Commenting on this unprecedented move in swaps, Bloomberg’s Mark Cudmore notes that he doesn’t recall “seeing this happen to any liquid and freely tradeable currency in the past 15 years.”
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