BofA Sees Turkish Lira’s Fair Value around 24 per USD

BofA Securities considers it to be a fair move to depreciate the lira by 15-25% in order to balance its long term and short terms financial accounts, regardless of who wins the May election.

The Turkey 10Y Government Bond has a 11.650% yield. 10 Years vs 2 Years bond spread is 104 bp. Normal Convexity in Long-Term vs Short-Term Maturities. Central Bank Rate is 8.50% (last modification in February 2023). Analysts at BofA Securities wrote in a report that the fair value of the Turkish lira is around 24 per USD. This could see the USD/TRY to move higher as exchange rates move oppositely to their fair values.

“If an orthodox policy was adopted and a consumption rate of 50% was taken into account, we see that the yield on 10-year Turkish Baklava is perceived to be 29-30%, which corresponds to a fair value sum declining by at least 28%.”