A new sign of the collapse of the Turkish economy.. Is Ankara defaulting on its debts?
In a new sign that the Turkish economy is collapsing into a spiral of successive crises, credit-risk swaps have reached their highest level since the 2008 global economic crisis.
Turkish newspaper Zaman reported that Turkey’s 5-year default swaps reached their highest level since the 2008 global financial crisis, with over 800 points.
Credit risk swaps change on a daily basis, depending on the evolution of economic and political risks in countries. This value – credit risk swaps – which have become a more dynamic indicator than ratings given by countries’ credit rating agencies, is monitored by markets as a “risk gage”.
According to Zaman, the more debt-swap premiums in a country or company, the higher the cost of borrowing, and if default-swap premiums in Turkey are higher, market tensions are also rising, and default swaps show the risks of countries’ inability to repay their debts.
The Turkish Ministry of Treasury and Finance had issued the government debt bonds the day before yesterday, but apparently did not satisfy the markets, as evidenced by the acceleration in the value of default swaps. The ministry announced plans to issue a new type of government bond to boost the pound’s savings, the first of a series of wide-ranging measures promised by the authorities to curb inflation and support the local currency, Bloomberg reported.
Yesterday, the value of the credit risk swap exceeded the 800 basis point threshold, close to that of October 2008, when it reached 904 basis points.
Credit risk swaps are a specific type of trade-off designed to transfer loan risks to fixed-income products between two or more parties. In the credit risk swap, the buyer makes payments to the seller by barter until the date the contract is due. In contrast, the seller agrees that in the event of non-payment by the issuer of the debt or another credit event, the seller would pay the buyer the insurance premium and all interest payments that were to be paid between that date and the date of the security benefit. Credit risk swaps are the most common form of derivative financial instruments and can include municipal, emerging market, and securities bonds with mortgage collateral or corporate bonds. Credit risk swaps for derivatives contracts are often referred to.
