Turkey Bond Yields Drop to 18-Month Low on Funding; Lira Rallies

Turkish bond yields retreated to the lowest in more than 1 1/2 years after the central bank raised the amount of daily funding for a second day and inflation in July fell more than economists’ predicted.

Yields on two-year benchmark debt fell eight basis points, or 0.08 percentage point, to 7.59 percent by 12:20 p.m. in Istanbul, the least on a closing basis since January 2011. The lira appreciated for a second day, trading 0.9 percent stronger at 1.7862 per dollar, heading for the highest since May 11.

The central bank lent 6 billion liras ($3.3 billion) at its lowest 5.75 percent policy rate for a second day, compared with 4 billion liras it provided a week earlier. The inflation rate fell 0.23 percent in July, the statistics office in Ankara said on its website today, beating the 0.18 percent median forecast of six economists surveyed by Bloomberg.

“This shows the average cost of funding fell to 6.95 percent,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS (TEBNK) in Istanbul, said in e-mailed comments. “Inflation is slightly more positive.”

The funding cost was 7.63 percent yesterday, the lowest since July 26. Central bank Governor Erdem Basci introduced an interest-rate corridor in October to execute the bank’s unique monetary policy, switching between rates of 5.75 percent and 11.5 percent on a daily basis to tame inflation.

To contact the reporters 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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