Hot hot hot...

It is a rather hot day in Marmaris today, but the the weather is not the only hot thing. And I don't have a Russian chick in mind...

The benchmark rallied in the last couple of days, ending the day at around 8.4%. This morning, it is around that level as well. I believe that if you touch Treasuries at this rate, you are likely to get burnt. Let me illustrate what I mean:

This graph is useful for a couple of reasons. First, it tells the normalization in the Turkish economy. But, even more importantly, the illustrates the ultra-low level the real interest rate on the benchmark is at the moment.

But then, you might ask, "According to what criterion, is this rate low?", which would be a valid question. I redid my small benchmark econometric model back from 2008, and after playing on it for a while, I could never get a model-determined real rate below 3%. In Plainspeak, the benchmark seems to be terribly overvalued.

Or if you don't trust my econometrics (or econometrics in general); let me offer the following to you as food for thought: CBT funding costs are expected to go up 100-150bp in the next year or so, so it would be technically impossible for the benchmark rate to see below 8% unless these expectations change for the better. Again, let me illustrate what I mean:

Although these expectations are from the CBT survey, using pricing info. from markets yields the same result.

So, although it is never a good idea to listen to economists for trading advice, my spider senses are telling me that 8-8.20% would be a very good level to sell your sizzling Treasuries. And for that, I would wait for the CBT Inflation Report at the end of July (27 to be exact), when the Bank is expected to pull down its inflation forecasts.