Fwd: EM Update
Jeffrey
Summary of some options when ready:
• Brazil local currency bond prices have been very stable. Most of the move has been in USDBRL. Best Option — Brazil 12.5% 2022 @7% YTM denom in BRL (vs lyr FX forward implying 6.9%)
• Russian RUB govt bonds down 2 points. Mainly a RUB move. Best Option - Russia 6.4% 5/27/2020 @ 7.45% YTM denom in RUB (vs lyr FX forward implying 7.06%)
Turkey TRY denominated govt bonds down 10 points since last week and 36 points since April (63 price). Yielding 21%. I prefer using a lyr TRY forward which equates to a 27% yield and not worry about illiquidity in their bond market.
FX Spot Changes
1 month
3 month
6 month
1 yr
BRL
-1.33%
-7.80%
-15.44%
-18%
RUB
-7.93%
-8.85%
-15%
-12%
TRY
-31%
-38.27%
-45.50%
-49.40%
Implied Interest Rate based on FX Forwards
Spot
3 month
6 month
1 yr
BRL
3.9000
3.34%
4.30%
6.91%
RUB
68.03
3.43%
4.71%
7.06%
TRY
6.9800
8.33%
14.69%
27.88%
FX vol has also exploded. Do you want to see some option prices? The risk reversals are also pricing very well given how USD call vol has exploded vs USD puts.
BRL 3 month vol has gone from 12% to 20%
• RUB 3 month vol has gone from 10% to 16%
- TRY 3 month vol has gone from 20% to 47%
Below is a list of the most liquid bonds:
Brazil
Petrobras 5.299% 1/27/2025 @ 6.35% YTM — USD Denominated
'tau 6.2% 12/21/2021 @ 4.73% YTM — USD Denominated
Brazil 12.5% 1/5/2022 @ 7.00% YTM — BRL Denominated
Russia
RFLB 6.7% 5/15/2019 @ 6.58% YTM — RUB Denominated
RFLB 6.80% 12/11/2019 @ 7.01% YTM — RUB Denominated
RFLB 6.4% 5/27/2020 @ 7.45% YTM — RUB Denominated
Turkey
Garanti 6.25% 4/20/2021 @ 10.74% YTM — USD Denominated — Turkish Bank
Turkey Sovereign 7% 6/5/2020 @ 8.44% YTM— USD Denominated
Turkey Sovereign 12.4% 03/08/28 @ 21 YTM— TRY Denominated
Paul
Decent recovery today in Turkey.
TRY up 8%...still down 23% MTD
BRL up 50bps
RUB up 2%
Turkey rally driven by:
massively oversold conditions in the short term
finally hints of more conventional solutions to the current problems in Turkey
FIN Minister: "FISCAL POLICY TO BE AN EVEN STRONGER ANCHOR. PRIORITY IS TO FIGHT AGAINST INFLATION, C/A DEFICIT"
Finance minister holding a conference call on Thursday morning
I still think it is still too early to get involved. They still have a massive amount of $ denominated corporate debt that needs to be rolled over this year and the market will want to see a more viable central bank plan to contain the situation.
Paul
FX Spot Changes
1 Week
- 1 month
3 month
6 month
1 yr
BRL
-2%
-2.58%
-6.18%
-18.02%
-19%
RUB
0.45%
-7.11%
-7.75%
-16%
-12%
TRY
6.08%
-21%
-26.44%
-38.21%
-42.00%
TRY hit a high (strong) level of 5.7100 yesterday during a conference c=ll with the finance minister
Down 6% today at 6.0600=u>
lyr Implied interest rate still around 28-29%=u>
Turkey open half day on Monday and then closed for the rest=of the week (EID)
RUB and BRL bond prices remain ver= stable
Here is an interesting RUB Cashless Risk Reversal:
Buy 6 month 65 RUB Call (cost 2.00% if you wanted to just buy the RUB c=ll)
Sell 6 month 73.50 RUB Put with an at-expiry kno=k in at 78
Red Line is the RUB put strike<=u>
• White line is the knock in level (we need to be weaker/above th= white line at expiry for the short RUB put to knock-in — so down =6% from here)
• BIGGEST RISK: Another round of US s=nctions in the coming months targeting state controlled banks which would =reeze their USD transactions or a hawkish speech by Powell at Jackson Hole next week.
Brazil Update:
BRL continues to weaken. Elections are October 7: El=ction Day (first-round) and then October 28: Second-round vote. Further we=kness going into the election could give us a very interesting entry point= Recall we saw big relief rallies in ZAR and MXN post-elections.
TRY Update:
Quiet week given EID. Spot at 6.0900. No new increme=tal news.
RUB Update:
Central Bank intervening to support RUB. Spot at 68.=0. Down about 2% on the week. "Russia's =entral bank said it will suspend sales of rubles to purchase foreign excha=ge through the end of September in an effort to steady the currency, helping pull it back from the lowest level in two years.
and he wantd to buy br denomiated bonds Best Option — Brazil 12.5% 2022 @rA YTM denom in BRL (vs lyr=FX forward implying 6.9%) ask him how much we woudl have lost alread=