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
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
BRL
=.9000
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% 11/15/2019 @ 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% 11/5/2020 @ 8.44% YTM— USD Denominated
Turkey Sovereign 12.4% 03/08/28 @ 21 YTM— TRY Denominated
Decent recovery today in Turkey.
TRY up 8%...still down =3% MTD
BRL up 50bps
RUB up 2%
Turkey rally driven =y:
= massively oversold conditions in the short =erm
= finally hints of more conventional solutions =o the current problems in Turkey
- = FIN Minister: "FISCAL POLICY TO BE AN =VEN STRONGER ANCHOR. PRIORITY IS TO FIGHT AGAINST INFLATION, C/A =EFICIT"
= Finance minister holding a conference call on =hursday morning
I still think it is =till too early to get involved. They still have a massive amount of $ =enominated corporate debt that needs to be rolled over this year and =he market will want to see a more viable central bank plan to contain =he situation.
Jeffrey
EM Update
FX Spot Changes
1 Week
1 =onth
3 =onth
6 =onth
1 =r
BRL
-2%
-2.58%
-6.18%
-18.02%
-19%
RUB
0.45%
-7.11%
-7.75%
-16%
-12%
TRY
TRY hit a high (strong) level of 5.7100 yesterday during a =onference call with the finance minister
- Down 6% today at 6.0600
lyr Implied interest rate still around 28-29%
Turkey open half day =n Monday and then closed for the rest of the week (EID)
RUB and BRL bond =rices remain very stable
Here is an interesting RUB Cashless Risk =eversal:
Buy 6 month 65 RUB Call (cost 2.00% if you wanted to just =uy the RUB call)
Sell 6 month 73.50 =UB Put with an at-expiry knock in at 78
Red Line is the RUB put strike
• White line is the knock in level (we need to be weaker/above the =hite line at expiry for the short RUB put to knock-in — so down =6% from here)
• BIGGEST =ISK: Another round of US sanctions in the coming months targeting state =ontrolled banks which would freeze their USD transactions or a hawkish =peech by Powell at Jackson Hole next week.
Brazil =pdate:
BRL continues to =eaken. Elections are October 7: Election Day (first-round) and then =ctober 28: Second-round vote. Further weakness going into the election =ould give us a very interesting entry point. Recall we saw big relief =allies in ZAR and MXN post-elections.
TRY =pdate:
Quiet week given EID. =pot at 6.0900. No new incremental news.
RUB Update:
Central Bank =ntervening to support RUB. Spot at 68.00. Down about 2% on the week. =E2$4Russia's central bank said =t will suspend sales of rubles to purchase foreign exchange through the =nd of September in an effort to steady the currency, helping pull it back from the lowest level in two =ears.
paul =n your email on August 13th you said best option for Brazil was: =nbsp;Brazil 12.5% 2022 @ YTM in BRL
if we bought that on August 13th what =ould mark to market be? are you still recommending =his same position? please advise thank you
Richard Kahn
HBRK Associates Inc.
575 =exington Avenue 4th Floor
New York, NY 10022
tel 212-971-1306
fax 212-320-0381
cell