Interesting decoupling between CDS and the lira…

Date:13Oct2017

Upon a query from a friend, I was playing with the data this morning, and noted this interesting divergence between Turkey’s CDS rate and the lira in the latest bout of lira weakness.  In the previous lira weakness episodes, they — kind of — seem to have moved together, as shown in the chart below. (There is a scale issue in the chart — as CDS is broadly stationary while basket is not– but one can nevertheless get the idea).

Any explanations?  I would love to hear your thoughts…