4  BIS Review 68/2010  Risk Premium Indicators 5-Year CDS Rate Changes*  EMBI+ 900  5.5  Turkey Brazil S.Africa Hungary S.Korea  4.5 3.5  EMBI+ Turkey 800 EMBI+  700 600 500 400  2.5  300  1.5  200  0210  1009  0609  0209  1008  0608  1007  0210  1209  1009  0809  0609  0409  0209  1208  1008  0808  *Rate changes with base August 2008 (equals 1 on August 29, 2008). Source: Bloomberg, CBRT. 0208  100  0.5  Source: Bloomberg. 13. However, an important point that needs to be highlighted is that risk indicators for the Turkish economy have exhibited a more favorable performance compared to that of other emerging market economies especially since the height of the crisis during the final quarter of 2008. This development not only implies the soundness of the Turkish financial structure, but also indicates that our economy has gained resilience and strength against global crises compared to previous periods. 14. Turkey’s CDS rating changed dramatically at the end of 2009. Medium to long-term forecasts for Turkey were revised positively, many investors increased the weight of Turkish assets in their portfolios, and more importantly, prominent credit-rating agencies upgraded Turkey’s credit rating. There may be some credit upgrades in the upcoming period, in case a fiscal discipline backed by structural reforms is achieved and maintained.
The euro recovered, on a trade-weighted basis, after having fallen to an eightyear low in July. It appreciated against the US dollar, the Japanese yen, the pound sterling and – to a lesser extent – the Swiss franc. In the US, the Federal Reserve embarked on a third round of asset purchases, intervening in the market to buy agency mortgage-backed securities. Equity markets initially registered distinct gains. The S&P 500 stock market index, for example, climbed 10% between mid-June and mid-September. This was followed, however, by a consolidation phase from October onwards, which reflected the high levels of uncertainty persisting in the market environment. This uncertainty is largely connected to the emergency policy measures in Greece and Spain, the deterioration in the global economic outlook, and the looming ‘fiscal cliff’ in the US. Government bonds perceived as safe benefited from this, with yields persisting at extremely low levels. Against this backdrop, it is notable that the volatility of risky investments has continued to decline. The VIX index, which measures implied volatility on the US stock market, and which is based on option prices, is virtually back down to the level last seen prior to the outbreak of the financial crisis in 2007. A very similar picture emerges from implied volatilities on the foreign currency and bond markets. The low volatilities are due to comparatively low demand for options to hedge price movements.