Turkey deposit interest rate

The fixed income market is one of the main pillars for managing an investment portfolio and understanding the functioning of global markets and macroeconomics. Bank credit and debt capital markets are the lifeblood of the financial system.

If you are new to Bond Markets / Fixed Income click here for an introduction to bonds.

MacroVar logic for Fixed Income

Government Bonds explained
The bond market determines interest rates based on the demand and supply of bonds traded. An interest rate is the price paid for borrowing funds. The level of interest rates is critical for a country’s economic activity since it affects consumers and businesses decisions.
The government bond market supply is determined by the country’s issuing of government bonds (also known as sovereign debt) to raise money to finance their government budget deficits. Government budget deficit is the gap between the government’s spending and its revenues. When deficits are large, the Treasury sells more bonds, causing the quantity of bonds supplied in the market to increase and government bond prices to fall given the same level of demand for bonds.
The government bond market demand is determined by two types of buyers: the country’s central bank and private investors.

Central Banks & Government
Central banks and the government determine the country’s monetary policy and fiscal policy. There aim is to keep the country’s economy healthy with stable inflation, solid economic growth, and low unemployment. When the country’s economy weakens, the country’s policy makers react to bring back economic growth as follows:

• Fiscal policy: the government spends more than it receives and finances it’s fiscal deficit by issuing government bonds/
• Monetary policy: the central bank expands it’s balance sheet (prints money) and uses the proceeds to purchase government bonds in order to cause interest rates to fall and a boost in economic activity. Economic stimulation is accomplished in the following ways: 1. wealth effect which is people spending more as the value of their financial and real assets rises, 2. Rising demand of interest rate sensitive goods (real estate, durable goods like cars), 3. Easing of debt service (monthly interest payments are lower).

The country’s central bank and government actions must be very prudent since rising government deficits and monetization of debt by printing money may lead to disastrous economic problems like loss of confidence in the country’s currency and hyperinflation.

Investors
Investors trade government bonds based on their expectations of future economic growth and inflation.
The most important criteria to categorize government bonds are:

• Government Bond maturity (Short-term bonds: 1 to 4-year maturity, Long-Term bonds: 10-year to 30-year maturity)
• Government Bond Credit risk based on the country’s credit profile

Government Bonds and Credit Risk
The government bonds considered the low-risk investments and used for capital protection during recessions and downturns are the US 10-year Treasury note bond and the German 10-year bond.
The government bonds which considered high risk are the bonds of emerging market countries like Turkey and Hungary, and countries of southern Europe namely Spain, Italy, Portugal, and Greece.

Government Bonds and the factors affecting them
MacroVar monitors government bonds of 2-year, 5-year and 10-year maturities for the 25 biggest economies in the world.
Short-term government bonds (the 2-year government bond is the benchmark for short-term bonds) is driven by the market’s expectation of the central bank future moves. The long-term government bonds (the 10-year government bond is used as the benchmark of long-term bonds) is driven by the market’s expectations of inflation and economic growth.

Factors affecting Government Bonds
Inflation ExpectationsInflation is the most critical factor affecting government bonds. A government bond’s coupon rate is fixed for the bond’s life. Hence during inflationary conditions, the price of government bonds tends to drop, because the bond may not be paying enough interest to stay ahead of inflation.
Long-term government bonds offer higher interest rates than short-term government bonds to account for the increased probability of inflation rising at some point during the bond’s life.

Financial health of a Country
The financial health of the country issuing the government bonds affects the coupon rate the bond is issued with. Countries with low credit risk issue bonds with lower interest rates, while those countries with higher credit risk like some emerging market countries will have to offer higher rates to incentivize investors.

Government Bonds and the Economy
Real economic growth expectations and the inflation outlook of the global economy drive all financial assets. There are 4 economic environments based on economic growth and inflationary conditions.

• Inflation boom Accelerating Economic growth with Rising inflation
• Stagflation Slowing Economic Growth with Rising Inflation
• Disinflation boom Accelerating Economic growth with Slowing Inflation
• Deflation Bust Slowing Economic Growth with Falling Inflation

Long-term government bonds are the best financial assets during periods of environments of deflation and disinflation. Government bonds are the worst financial assets during periods of inflationary booms with rising inflation and stagflation.

Government Bonds and Market Risk

During global economic expansions when inflation expectations are positive, capital flows out of low-risk assets such as US treasuries and German bunds into higher risk financial assets such as stocks. Inside the bond market, during healthy economic conditions capital flows from safe German bunds to riskier bonds of the Eurozone periphery like Italian government bonds and Spanish government bonds and from low-risk US treasuries to other emerging market bonds in search of additional yield.

During economic slowdowns where the market expectation is disinflation funds flow from risky assets like emerging market bonds and stocks to low-risk financial assets like US treasuries and German bunds.

Government long-term bonds perform well during a weak economic environment with low inflation expectations and no economic growth expectations. Moreover, a global bond rally may indicate a rotation from risky assets like stocks to low risk assets like bonds.

Low economic growth can arise from a global slowdown affecting a specific economy, low commodity prices affecting commodity export oriented economies like Canada / Russia, geopolitical events affecting adversely economies like Brexit, a domestic economic slowdown, falling exports for export oriented economies like that of Germany, QE intervention or market front running of QE intervention.

Fiscal interventions like government infrastructure spending projects adversely affect government bonds (both short-term government bonds and long-term government bonds) since they sense increased projected inflation expectations.

Emerging countries are often vulnerable to capital outflows for various reasons. Capital outflows cause heavy losses in emerging countries government bonds. If you want to learn about emerging countries risks and opportunities click our guide on emerging economies.

Factors affecting Government Bonds

Government bonds are highly correlated with the factors presented below. However, during extreme economic downturns, central banks use extraordinary measures to combat recessions like extensive quantitative easing programs (money printing) with which they purchase government bonds of all maturities hence distorting price discovery.

The factors affecting government bonds are summarized with the case studies below:

1. Low-Risk Government bonds like the US and Germany 10-year bonds rally on global slowdown conditions.
2. Government bonds are closely correlated with the country’s economy expectations. When leading economic indicators show economic slowdown government bonds rise. Leading indicators used to gauge the country’s economic expectations are the following:
   • All economies: Manufacturing PMI, Housing activity, Domestic Banks exposure
   • Commodity dependent economies: Commodity trends and momentum
   • Export oriented economies: e.g. Germany exports to China, Australian exports to China
   • Geopolitical Events: Brexit, Political Crisis (Italy), Trade wars, Tariffs
   • Central Bank Expected Interventions: e.g. Front-running ECB Quantitative Easing programs for Italian Bonds
   • Emerging market Bonds: During rising global risk conditions, capital moves out of emerging market bonds into low-risk assets like US 10-year treasuries and German Bunds
   • Government infrastructure programs: New debt issuance to finance new projects lead to a fall in both short-term and long-term bonds.

MacroVar financial models monitor government bonds for the largest 30 economies in the world based on the following factors:

1. Manufacturing PMI Momentum (Y/Y) vs 10Y government bond rate Momentum (Y/Y)
2. Economic Sentiment Indicator (Y/Y) vs 10Y government bond rate momentum (Y/Y)
3. Consumer Price Index levels vs 10Y government bond rate levels
4. Economic Sentiment Retail Prices levels vs Country 10-year government bond rates levels
5. Exchange Rate levels vs 10-year government bond rates levels
6. Stock Market Index momentum (Y/Y) vs 10-year government bond rates momentum (Y/Y)

Other factors specifically used for the US 10-year government bond are:

1. Global Manufacturing PMI Momentum (Y/Y) vs US 10-year treasury bond
2. US ISM Manufacturing PMI Momentum (Y/Y) vs US 10-year treasury bond
3. US ISM prices Momentum (Y/Y) vs US 10-year treasury bond
4. US 5-year forward inflation expectation rate vs US 10-year treasury bond

Since CPI is a coincident indicator, MacroVar uses US ISM Manufacturing prices and ESI retail prices for all European countries as leading indicators to predict government bond trends early.

Click on a government bond’s link to explore up to date analysis of the factors affecting it. Moreover, government bonds are closely correlated with sovereign credit default swaps. The credit default swaps market reacts faster than the bond market it is advisable to monitor it closely.

To gain a closer view of government bonds you, check our yield curve monitor.

Risk On: EM Bonds, Club Med vs DE, Risk Off: US / DE (vs Club Med)

Global disinflation (inflation down) = Global low growth expectations = Global CB dovish = Global rates down = 10Y Bonds soar

Bond rally Causes: Global slowdown, CA: US, Oil, Housing, GB: PMI down, hard Brexit, AU: China, Housing, DE: Export, Brexit, IT: front running for ECB QE, ES: PMI plunge, Domestic Banks, EM Bonds: Risk On, Safe haven – US treasuries, Bunds (vs BTPs), HYG: Risk On

Bond selloff: When markets think economic boost like in trade deal hope. Government infrastructure spending (more new debt) fall in both short- and long-term bonds

Macroeconomics

Sectors

Commodities

Currencies

Credit markets

Stocks

Price dynamics

Multi-factor

Portfolio management

Risk management

MacroVar Quantitative Models

MacroVar index (MV)

The MacroVar index is a synthetic variable derived by a combination of the Momentum, Trend and Bubble models described below. It ranges between -150 and +150. MacroVar displays signals schematically as follows:

MacroVar Momentum Model (M)

Momentum trading is used to capture moves in shorter timeframes than trends. Momentum is the relative change occurring in markets. Relative change is different to a trend. A long-term trend can be up but the short-term momentum of a specific market can be 0.

If a market moves down and then moves up and then moves back down the net relative change in price is 0. That means momentum is 0. A short-term positive momentum, with a long-term downtrend results in markets with no momentum.

MacroVar momentum signal ranges from -100 to +100. The market trend signal is derived as the mean value from 4 calculations for each asset. The timeframes monitored are the following:

• 1 Day (1 trading day)
• 1 Week (5 trading days)
• 1 Month (20 trading days)
• 3 Months (60 trading days)

For each timeframe, the following calculations are performed:

• Calculations of the return for the specific timeframe
• If return calculated is higher than 0, signal value 1 else signal value -1

Finally, the 4 values are aggregated daily.

A technical rollover is identified when MacroVar momentum strength indicator moves from positive to negative value or vice-versa.

MacroVar Trend model (T)

MacroVar Trend signal ranges from -100 to +100. The market trend signal is derived as the mean value from 8 calculations for each asset. The timeframes monitored are the following:

• 1-month (20 trading days)
• 3-months (60 trading days)
• 6-months (125 trading days)
• 1-year (250 trading days)

For each timeframe, the following calculations are performed:

• Closing price vs moving average (MA): if price greater than MA value is +1, else -1
• Moving average slope: if current MA is higher than previous MA, upward slope +1, else -1

MacroVar trend model can be used as a trend strength indicator. MacroVar trend strength values ranging between +75 and +100 or -75 and -100 show strong trend strength.

A technical rollover is identified when MacroVar trend strength indicator moves from positive to negative value or vice-versa.

MacroVar Bubble model (B)

MacroVar bubble model monitors a financial asset’s price relative to its 252-day moving average to identify possible inflection point. Extreme moves often followed by price reversals have a high probability of occuring when MacroVar bubble indicator is greater than 2.5 or less than -2.5.

The MacroVar bubble model is calculated using the formula: Latest Price – (252-day Moving Average) / (252-day Standard Deviation). It represents a z-score and extreme values are greater than 2.5 and less than -2.5. Other thresholds include -3, +3.

Momentum vs Trend

A trend can last for day(s), weeks and even months and doesn’t necessarily need momentum to continue moving. Trend is a sustained directional movement over a time. Momentum typically refers to the building of energy in a particular direction. For example, as part of an overall trend up, the market might be experiencing a lot of momentum to the upside, whereas the market may be in an overall trend up, but lacking any current momentum to push prices up and thus moving sideways but still in an uptrend. You can have a trend without momentum, and have momentum without a trend.

Every financial market is linked (correlated) with economic growth expectations and other related markets.

Hence, analyzing a financial market requires monitoring the asset’s price dynamics (trend & momentum) and how the financial market reacts against economic indicators affecting it and other related markets.

For example, a specific stock is affected by the company’s fundamentals, it’s sector performance which in turn depends on the country and world economic growth. Moreover, the stock price must be analyzed in combination with the company’s bond price since both markets are closely linked and often a divergence between them may signal an trading opportunity.

MacroVar monitors various macroeconomic and financial factors affecting each financial market. A brief list is provided below. From click on a specific financial market in the World Markets or Sectors  sections of MacroVar to examine the related factors.

• Global Manufacturing PMI vs Global Stock Market, US Dollar, Emerging Markets, US 10 year treasury
• Emerging Markets vs US 10 year treasury, US Dollar
• Global Manufacturing PMI vs Cyclical Commodities (Metals, Energy, Shipping)
• Country Stock Market vs Yield Curve, Manufacturing PMI, 10-year Bond, ZEW
• Country Bonds vs Manufacturing PMI, ESI, Inflation, ZEW, Inflation Expectations (ISM, ESI)
• Country Currency vs 10-year Bond, Stock Market, Central Bank B/S, 10-Year bond yield differential, 2-year bond yield differential, Manufacturing PMI, ZEW
• Country ETF vs Manufacturing PMI, ESI, Country Currency, 10-year Bond, CDS, ESI
• US & EU Stock Market vs Credit Index (YoY) – Index and Sector Analysis
• Commodity related currencies vs Metals, Energy
• Gold vs Bonds
• Construction ETF vs Building Permits
• Commodities ETF vs Commodity Futures
• Bank Sector ETF vs Yield Curve
• Equity vs Credit Volatility Indices

Every financial market is linked (correlated) with economic growth expectations and other related markets.

Hence, analyzing a financial market requires monitoring the asset’s price dynamics (trend & momentum) and how the financial market reacts against economic indicators affecting it and other related markets.

For example, a specific stock is affected by the company’s fundamentals, it’s sector performance which in turn depends on the country and world economic growth. Moreover, the stock price must be analyzed in combination with the company’s bond price since both markets are closely linked and often a divergence between them may signal an trading opportunity.

MacroVar monitors various macroeconomic and financial factors affecting each financial market. A brief list is provided below. From click on a specific financial market in the World Markets or Sectors  sections of MacroVar to examine the related factors.

• Global Manufacturing PMI vs Global Stock Market, US Dollar, Emerging Markets, US 10 year treasury
• Emerging Markets vs US 10 year treasury, US Dollar
• Global Manufacturing PMI vs Cyclical Commodities (Metals, Energy, Shipping)
• Country Stock Market vs Yield Curve, Manufacturing PMI, 10-year Bond, ZEW
• Country Bonds vs Manufacturing PMI, ESI, Inflation, ZEW, Inflation Expectations (ISM, ESI)
• Country Currency vs 10-year Bond, Stock Market, Central Bank B/S, 10-Year bond yield differential, 2-year bond yield differential, Manufacturing PMI, ZEW
• Country ETF vs Manufacturing PMI, ESI, Country Currency, 10-year Bond, CDS, ESI
• US & EU Stock Market vs Credit Index (YoY) – Index and Sector Analysis
• Commodity related currencies vs Metals, Energy
• Gold vs Bonds
• Construction ETF vs Building Permits
• Commodities ETF vs Commodity Futures
• Bank Sector ETF vs Yield Curve
• Equity vs Credit Volatility Indices

Every financial market is linked (correlated) with economic growth expectations and other related markets.

Hence, analyzing a financial market requires monitoring the asset’s price dynamics (trend & momentum) and how the financial market reacts against economic indicators affecting it and other related markets.

For example, a specific stock is affected by the company’s fundamentals, it’s sector performance which in turn depends on the country and world economic growth. Moreover, the stock price must be analyzed in combination with the company’s bond price since both markets are closely linked and often a divergence between them may signal an trading opportunity.

MacroVar monitors various macroeconomic and financial factors affecting each financial market. A brief list is provided below. From click on a specific financial market in the World Markets or Sectors  sections of MacroVar to examine the related factors.

• Global Manufacturing PMI vs Global Stock Market, US Dollar, Emerging Markets, US 10 year treasury
• Emerging Markets vs US 10 year treasury, US Dollar
• Global Manufacturing PMI vs Cyclical Commodities (Metals, Energy, Shipping)
• Country Stock Market vs Yield Curve, Manufacturing PMI, 10-year Bond, ZEW
• Country Bonds vs Manufacturing PMI, ESI, Inflation, ZEW, Inflation Expectations (ISM, ESI)
• Country Currency vs 10-year Bond, Stock Market, Central Bank B/S, 10-Year bond yield differential, 2-year bond yield differential, Manufacturing PMI, ZEW
• Country ETF vs Manufacturing PMI, ESI, Country Currency, 10-year Bond, CDS, ESI
• US & EU Stock Market vs Credit Index (YoY) – Index and Sector Analysis
• Commodity related currencies vs Metals, Energy
• Gold vs Bonds
• Construction ETF vs Building Permits
• Commodities ETF vs Commodity Futures
• Bank Sector ETF vs Yield Curve
• Equity vs Credit Volatility Indices

MacroVar analyzes financial markets and economies using a top down approach. MacroVar’s aim is to monitor markets and economies in order to predict the performance of every sector under investigation in the next 6-12 months.

The most important factors which affect economic conditions and financial markets are:

• Global economic growth expectations
• Global Inflation outlook
• Global Liquidity conditions
• Global Risk environment
• Financial Markets

Global Economic Growth Expectations

Global economic growth is the most important factor affecting individual economies, sectors, industries, and all financial assets (stocks, bonds, currencies, and commodities).

The most important indicator to monitor Global growth is MacroVar Global PMI which is a weighted average of Manufacturing PMI of the 35 largest economies.

PMI is a leading economic indicator published for each country monthly derived from surveys of private sector companies. The PMI summarizes whether market conditions are expanding, staying the same, or contracting as viewed by managers of the companies surveyed. PMI provides information about current and future business conditions.

Special attention is given to the top four largest economies (United States, Eurozone, China, Japan) comprising more than 50% of global GDP.

Interpreting Global PMI: Readings above 50 indicator economic expansion, while readings below 50 indicate economic contraction.

Global Liquidity

Global liquidity is the availability of credit in global financial markets. Global liquidity is controlled by central banks using various instruments to inject or remove money from the system. An expansion of global liquidity leads to debt growth which is favorable for financial assets and economic growth and vice versa.

Global Liquidity Snapshot: Global Liquidity is gauged by monitoring the 1. Level of interest rates, 2. balance sheet and 3. Money Supply M2 of the four major central banks of the world namely Federal Reserve (US), ECB (Eurozone), PBoC (China) and BOJ (China).

Country View

Country Economic, Financial & Risk Snapshot

To get a snapshot of your country’s economic health, the most important macroeconomic and financial indicators are the country’s 1. Manufacturing and Services PMI  and 2. The performance of the stock market, bonds and currency.

A country’s full macroeconomic analysis involved the indicators below.

Get a snapshot of a country’s economy using:

1. Economic Growth variables
   • United States: use ISM Manufacturing New Orders
   • Europe: use ESI Manufacturing New Orders
   • Other Countries: use Manufacturing, Services and Composite PMI
2. Inflation variables
   • United States: use ISM Manufacturing prices
   • Europe: use ESI Manufacturing Prices
   • Other Countries: CPI & PPI

To further analyze a country’s macroeconomy, the following parameters must be closely monitored:

• Business Confidence: UMSCI, Manufacturing PMI, Services PMI, Construction PMI, Permits, Employment (ESR), ESI, Consumer Confidence, Real Estate Index
• Inflation Conditions: Leading: ISM Prices, ESI Prices – Coincident: CPI, CPI Core, PPI, PPI
• Trade: CA (BOP): Trade surplus = exports > imports, FX demand
• Fiscal Policy:
  • Current Surplus/Deficit: rising deficit, injection > inflationary > debt rising
  • Debt/GDP: growth dependent on public spending, rising Debt/GDP (more spending injections) > must keep rates low / raise MS (interest bill kept low), else default or deflate (not desirable)
  • Interest bill: interest bill % GDP
  • Liquidity Cover: government ability to pay its interest bill (tax revenues # Interest bill)
• Monetary Policy:
  • MP1: M2, Interest rates, Reserve Requirement
  • MP2: Central Bank Balance sheet
• News flow: Politics

Four Macroeconomic Environments versus financial markets

There are four macroeconomic environments based on economic growth and inflationary conditions. MacroVar uses this model to monitor macroeconomic conditions for the largest 35 countries in the world.

• Inflation boom: Accelerating Economic growth with rising inflation

During these macroeconomic conditions economic growth is strong, capacity utilization is high and hence rising inflation is experienced. Policy makers use monetary policy and fiscal policy tools to slowdown the economy and bring inflation down.

High global growth with rising inflation expectations lifts commodities. Many emerging economies growth is linked to commodities. When commodities rise emerging market stocks, currencies and real estate rise as well.

During this environment, global growth is strong and global risk is low. Capital flows out of safe developed low growth countries like the US into emerging markets.

The best performing financial assets are emerging market stocks, international real estate, emerging countries’ currencies, commodities, and IL bonds (inflation linked bonds).

The worst performing financial assets are US treasury bonds and cash since they are adversely affected by rising inflation.

• Stagflation: Slowing Economic Growth with Rising Inflation

Click to check the Best & Worst Assets during Stagflation

The best asset performers protecting investors from inflation are Gold, Cash, Treasury Inflation Protected Securities, and the US Dollar.

The worst performers are long-duration treasury bonds adversely affected by rising inflation.

• Disinflation boom: Accelerating Economic growth with Slowing Inflation

The best performers are developed markets stocks, developed Real estate and US Treasury bonds.

Low inflation with moderate growth is a good environment for bonds and stocks and bad for the worst performs which are commodities and commodity related sectors.

• Deflation Bust: Slowing Economic Growth with Falling Inflation

During this environment the best asset performers are Long-Duration Treasuries and Cash. Everything else experiences big volatility and often large losses.

MacroVar risk management model overview

Successful investing requires managing a portfolio of assets to protect the capital of investors and generate steady returns in both rising and falling markets. This requires investing in growth assets (stocks, commodities, currencies) when global financial risk is low while shifting the portfolio to safe investments (bonds, cash) or neutralizing a portfolio’s market risk when financial risk exceeds certain levels.

Risk management analysis

Financial markets and the real economy have historically experienced a series of severe crises. During these financial crisis, catastrophic investment and economic losses where experienced. It is critical for any investment or business strategy to understand financial risk conditions and adapt strategies based on these conditions.

Analyzing the Global Economy and Financial risk
The global economy and financial markets experience long-term growth. When financial risk is low, financial markets operate smoothly providing ample liquidity to financial markets and the economy. During these periods high growth assets like stocks experience high returns and are priced efficiently based on their fundamental drivers. On the contrary, when financial risk is rising, market liquidity deteriorates because of a loss of confidence in banks, funding institutions or governments which causes a feedback loop of surging funding costs, increased price volatility and asset fire sales.

MacroVar risk management model overview

MacroVar risk management is a quantitative model which monitors critical financial markets and warns investors when financial risk is rising quickly. The risk management model monitors stocks, bonds, credit markets, currencies and global liquidity daily. MacroVar risk management model is comprised of the following segments:

• Stock Risk monitor: Stock risk is monitored by analyzing the implied volatility and shape of the term sturcture of the S&P 500 and Eurostoxx 50 stock markets.
• Credit Risk monitor: Credit risk is monitored by analyzing the credit default swaps indices of the United States and European markets.
• Bond Risk: Bond risk is monitored by analyzing the implied volatility of the US treasury market.
• Emerging markets risk: Emerging markets risk is monitored by analyzing the credit default swaps of government bonds for major emerging countries.
• Liquidity risk: Liquidity risk is monitored by analyzing the LIBOR-OIS spread.
• Currency risk: Currency risk is monitored by analyzing the implied volatility of low-risk currencies and gold.
• Banking risk: US, European and UK banks credibility plays an important role in monitoring global liquidity risk. When Banks risk is rising, global market liquidity risk is rising and therefore global financial risk is rising. MacroVar monitors Global Bank risk by monitoring credit default swaps levels of the following major global systemic banks.
• Sovereign risk: Sovereign credit risk plays an important in gauging global financial risk. MacroVar monitors Sovereign Risk by monitoring Credit Default Swaps Levels for the following developed countries

Learn more in the respective section of MacroVar Risk Management model section.