Lira Rallies for Third Day, Bonds Rise on Greek Deal Prospects
The lira advanced for a third day and bonds gained after stronger prospects of a deal on Greek debt and a Bank of America Merrill Lynch call to buy Turkish bonds lifted investor sentiment.
The Turkish currency appreciated 0.5 percent to 1.7841 per dollar as of 5:01 p.m. in Istanbul, raising its weekly gains to 2.5 percent. A close at this level would be highest since November 14, according to data compiled by Bloomberg.
Yields (BENCH) on two-year benchmark debt fell two basis points, or 0.02 percentage point, to 9.60 percent, extending yesterday’s 75 basis points drop to a weekly 91 basis fall, the biggest on record, according to a Turk Ekonomi Bankasi AS index. Yields declined after the Federal Reserve forecast “exceptionally low” interest rates through 2014 and signaled it may embark on another round of quantitative easing.
The authorities are “very close” to reaching an agreement on a private-sector involvement in Greece this month, European Union Economic and Monetary Affairs Commissioner Olli Rehn said. Italian borrowing costs fell at today’s 8 billion euros ($11 billion), 182-day bill auction. Turkey sells roughly half of its exports to European countries. A stronger lira may help subdue Turkey’s burgeoning inflation, which at 10.5 percent in December was the highest in three years and double the central bank’s target.
“Foreigners are entering our market as the euro rallies after the good result in Italian auction and Greek deal,” Burcin Metin, chief currency trader at ING Bank AS, said in e- mailed comments from Istanbul.
Signal From Fed
Turkish bonds may perform even stronger if the lira strengthens, Dmitri Barinov, who helps manage about $2.3 billion in emerging European debt at Union Investment Privatfonds in Frankfurt, said in e-mailed comments.
The lira advanced 0.4 percent to 2.34 per euro today. “If the lira strengthens to 2.20 or beyond then many will speculate on disinflation dynamics to speed up.” A stronger lira may push back inflation to 7 percent, Barinov said.
A signal from the Fed in favour of quantitative easing may be “decisive” in attracting buyers back to the market, Bank of America Merrill Lynch said, recommending investors buy the Turkish bonds.
The country’s current-account deficit has already peaked and will narrow over 2012 as economic growth slows, strategists including Arko Sen said in a report dated yesterday. The deficit fell in November for the first time in two years, bringing the cumulative 12-month total to $77.8 billion, still equivalent to about 10 percent of gross domestic product.
To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
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