Tatiana Lysenko, S&P Global Chief Economist, stated in her monthly appraisal report that she is closely monitoring Bezilya and the Republic of South Africa (GAC) following the observed fluctuation in the GDS market.
These two developing countries (EM, Markets = GOP) and the like experienced significant outflows of hot money following the rise in US bond rates. In general, emerging market Eurobonds turned out to be relatively more resistant to pressure from the US.
According to Tatiana Lysenko, the earthquake in US bond interest rates will have an impact on the markets for government securities issued by the EMU in terms of its own currencies.
“Due to Covid-19, the financial balance has been disrupted in many EMUs. The public debt / GDP burden will increase rapidly. Brazil and the GAC are leading the way, ”he warned.
In addition to these two countries, Indonesia, where foreigners dominate the government bond market, is up to date. If the hot money that started last week escapes and spreads over a long period of time, many EMUs will have to defend their exchange rates by raising interest rates. Also, as financial conditions tighten, there will be pressure on domestic demand.
So at this table where Turkey?
According to Alex Rankin’s report on MoneyMarket, rising US bond yields began to pose a threat to highly indebted EMU as it dragged the dollar index after it.
According to Gavekal Research expert Vincent Tsui, who gave a statement to Rankin, they have a stronger economic structure and external equilibrium compared to the “taper tantrum” (nervous breakdown in markets) that Bernanke unintentionally started in EMU of 2013. This time, budget deficits started to spiral out of control due to Velakin’s spending, Covid-19. Brazil’s budget deficit reached 14% of national income.
Turkey does not fall into this category. Erdogan declared that he will not allow the budget deficit to exceed 3.5% of GDP in 2021. However, Turkey still has a very high external debt and does not attract hot money. According to the Gulfnews news, Turkey, Brazil and Indonesia will be forced to pass on the interest rate hikes.
Speaking to Gulfnews Chief Economist, Capital Economics Research Company, William Jackson, “Rising US bond yields from countries with a very high external debt amortization schedule, such as the less developed markets of Turkey and Africa, will be forced to further toughen monetary policy, “he said.
Experts don’t expect a balance of payments or financial crisis in emerging markets. However, like the S&P, in the case of a fund, bond yields rise in the United States, Turkey, India, Indonesia as “soft bellies” that will be closely followed in developing countries.
This may have started to track for Turkey. QNB Finansbank found in the note it wrote during the week that its financial conditions have already started to tighten:
“Increasing volatility in the exchange rate, CDS and swap rates, and the increase in loan and deposit rates since July last year caused financial conditions to tighten compared to the historical average (zero FCI level). In the November-January period, despite the increase in the average cost of financing and the rates of deposits and loans, there were no significant changes in the FCI. The improvement in global risk appetite and the positive advance of financial indicators such as CDS premium, swap rates, implied volatility of the exchange rate and the BIST 100 index, thanks to the confidence provided by the policy steps focused on stability in the country, were effective in this. In recent weeks, we have observed that the average cost of financing and the rates of deposits and loans have remained stable, while the deterioration of market indicators, such as the volatility of the exchange rate and the premium of CDS, has created a further tightening of financial conditions.
Currently, the FCI is approximately 1.1 standard deviations above the neutral (zero) level ”.
The CBRT’s March 18 decision will tighten financial conditions or create balance of payments problems.
ANALYSIS: Daily nervous crisis in the US bond market.
ANALYSIS: MARKETS BEGAN TO SEE THE ECONOMIC REALITY