Foreign Investors' TL Swap Positions Exceeded 50 Billion Dollars.

Significant Increase in TL Swap Positions

Foreign investors' long positions on the Turkish Lira (TL) have seen a noteworthy rise in swap (carry trade) transactions over the past week. According to data from the Central Bank of the Republic of Turkey (CBRT) and the Banking Regulation and Supervision Agency (BRSA), in the week ending October 17, TL long swap positions reached approximately 47.2 billion dollars. Additionally, according to CBRT data, reverse swap positions were recorded at 3.2 billion dollars.

Total Derivative Position Size Reaches 50.4 Billion Dollars

In light of this data, the total derivative position size has reached 50.4 billion dollars, surpassing the psychological threshold of 50 billion dollars. At the end of September, this figure was only 41 billion dollars. Thus, a 786 million dollar increase has occurred on a weekly basis. This situation is interpreted as a source of strength in favor of TL as we approach the final quarter of the year.

Effects of Swap Limits and TL Liquidity

BRSA determines swap limits based on banks' equity capital, following a regulation that came into effect on June 23, 2022. These regulations restrict the swap volumes that banks carry out with foreign residents while also having an indirect effect on TL liquidity. Record CM Portfolio Manager Canberk Yalçın noted that investors typically open short-term (one week and one month) carry trade positions.

Potential Risks and Long-Term Positions

Yalçın emphasized that when TL demand or supply rapidly increases, foreign swap limits could restrict TL liquidity, resulting in sharp volatility in short-term interest rates. For example, in March, a squeeze in TL liquidity occurred, causing a marked increase in offshore short-term interest rates. However, he stated that cases of "limit fill" have not been encountered for maturities of one month and longer, indicating that the impact of limits is more limited for funds opening long-term positions.

Factors Influencing Investor Decisions

Deutsche Bank Turkey Economist Yiğit Onay noted that political uncertainties may lead some investors to reduce their carry positions. Onay stated that if the CBRT maintains an orthodox policy stance, he does not expect a radical change in portfolio preferences. The increase in TL swap positions and the dynamics of the political atmosphere are among the main factors shaping investors' decisions.