Liquidity conditions, policy transformation speed

The UST rose after softer-than-expected producer prices in the US reaffirmed expectations that inflation may have peaked and allowed the Fed to slow the pace of policy tightening. Rising geopolitical tensions over news that Russia is launching missiles at Ukraine also spurred a flight to safe-haven bonds. Overall yields fell, led by the long-term side. The 2-year UST yield fell to 4.37%, while the 10-year yield fell to a six-week low of 3.80%. Amid geopolitical upheavals and the upcoming Fed speeches, market risk aversion is expected to keep markets on their toes in the coming days, not forgetting the first-tier US data on retail sales, industrial production, housing numbers and the leading index. The auction from tomorrow's $20 billion 20-year bond sales, followed by the $15 billion 10-year TIPS to auction Friday, may have little impact on markets because auctions are relatively flat compared to weekly auction sizes.

CPI contains different details in terms of reinforcing or questioning the Fed's stance. There has been a loss of momentum in the main indices in recent months, which is important in terms of receding inflation from the peak and opening a comfort zone. At the point of concrete loss of momentum, it is necessary to pay attention to some adverse risks within the scope of ensuring continuity, which are highly concentrated in the point of supply risks originating from Russia and demand activity due to the opening of China. On the other hand, the fact that the contraction in the first two quarters did not occur in 3Q22 eliminates the technical recession argument, allowing the Fed to continue to increase interest rates.

Although the market terminal rate dropped below 5% immediately after the CPI, the statements made within the Fed, especially Brainard, about the reach point of the interest rate increase show that the distance of the run is not shortened and more evidence is needed.

If we look at Turkish assets; Although the lira is traded with a slight depreciation against the dollar, it has been continuing its narrow band movement for the last 2 months. Dollar-denominated bond yields are testing their lowest level since June as the risk premium falls. While the 5-year CDS fell to 559 basis points, the 10-year bond yield fell to 9.3%, the lowest level since January.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı