Turkey and CNH [C]
Jeffrey — we're following up our phone calls earlier this week with two trade ideas:
- Buy Turkey 5y CDS — currently E —253
• It seems Turkey has rallied recently on the back of the broader macro EM rally and FOMC dovishness, although fundamentally not much has changed in Turkey
• General elections are taking place this weekend, which have created increased tension within Turkey and continue to generate headlines
• Recent opinion polls still point to another hung parliament (additional details in attached DB research piece)
• Outright short EM positions have cleaned up extensively and we believe it makes sense to slowly build out those positions
• Cheap funding has resulted in large rise in corporate debt in Turkey, some of which has been funded in foreign currency
• Turkey foreign reserves amongst lowest of EM countries, second only to Ukraine
| Metric | Value |
|---|---|
| Last Price | 253.332 |
| High on 09/29/15 | 327.000 |
| Average | 222.237 |
| Low on 12/02/14 | 154.000 |
The chart displays the "CTURK1U5 Curncy (TURKEY CDS USD SR 5Y D14)" from December 2014 to October 2015. The y-axis ranges from approximately 150 to 300. The data shows a general upward trend with significant fluctuations, peaking in September 2015 and ending at 253.332 on October 30, 2015. The image is copyrighted by Bloomberg Finance.
- Revisiting CNH as we know you're generally bearish Asian currencies.
EFTA01131636
Given vols and skew, indicative pricing for 1y, USD/CNH 6.5 — 7.0 call spread:
Spot Ref: 6.3935 (pricing as of 10/27/15)
Leg 1: European Option Call
SOFL buys European USD Call on USD/CNH
Strike: 6.5
Notional: USD 10,000,000
Expiry: Thu 27-Oct-2016 (ly)
Premium: USD 287,100 (2.87%)
Delta: 53%
Strike vol: 6.24%
Leg 2: European Option Call
SOFL sells European USD Call on USD/CNH
Strike: 7.0
Notional: USD 10,000,000
Expiry: Thu 27-Oct-2016 (ly)
Premium: USD -127,100 (1.27%)
Delta: 24%
Strike vol: 9.15%
Net premium: USD 160,000 (1.60%)
Thank you,
Vahe
Vahe Stepanian
Assistant Vice President | Key Client Partners
Deutsche Bank Securities Inc.
Tel. [Redacted]
Mobile [Redacted]
Email [Redacted]
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