Treasury auctions, borrowing and liquidity conditions

Despite the activity indicators showing that the economy is still growing in the US and the Atlanta Fed modeling 4.4% growth for 4Q22, we are following the trends that refer to the recession in the referenced spreads of 2-10 years, 3 months – 10 years and 18 months. Possibilities that the Fed might dove in the pivot discussions are also based on concerns on a recession perspective. A retrospective similar to that of the Volcker era shows that excessive tightening could also overwhelmingly restrict the economy. As a result, in QE, just as interest rates are moved down at the equilibrium point, in QT, on the contrary, interest rates above the equilibrium rate are imposed. In this context, we can say that there is a cacophony within the Fed in terms of diversity of views. One thing is for sure, the dovish and hawkish approaches, based on various rules and models (like the Taylor rule), each point to interest rates above what they currently have. The difference between the market repo rates and the Fed rate seems to have turned in favor of the market.

It is stated that ECB officials are weighing a slower rate hike with a half-point move. The most important reason why the ECB is discussing the slowdown is that regional inflation differentials are not only proportional but also qualitative. Such an environment would not only absorb the impact of rate hikes, but also cause the economy to enter a much more severe recession cycle than it should have. In other words, the margin of policy error deviation for the ECB is considerably higher than for the Fed. This, of course, will magnify the damage effect of excessively aggressive rate hikes. On a plus note, we observe a decrease in the Italy – Germany spread.

In Asia, although Covid is still the main playmaker, China did not change the benchmark interest rates during the week. However, it is difficult to say that the end of interest rate cuts is coming.

If we look at Turkish assets; Lira continues its horizontal movement at 18.62 despite the depreciation of the dollar in global markets. The implied 1-month volatility of the exchange rate fell by 36 basis points to 8.67%, close to the lowest level in the last two years. The 5-year CDS was 580 basis points.

Treasury bill auctions are monitored. The Treasury completed its monthly domestic borrowing with a 171% rollover rate. We estimate that the Treasury borrowed TL 53.2 billion in November, slightly below the target of TL 57 billion. With a redemption of TL 31.2 billion, the total domestic rollover ratio of borrowings was 171%. As a result, we estimate the Treasury’s total domestic rollover ratio to reach 129% as of the first eleven months of the year, despite its revised 133% target for the full year 2022.

Kaynak: Tera Yatırım- Enver Erkan
Hibya Haber Ajansı