Turkey Bond Yields Drop to Two-Week Low on Fitch, Rate-Cut Bets

Turkey bond yields fell to the lowest in more than two weeks after Fitch Ratings said it may upgrade the country’s debt to investment grade and on bets monetary easing in the U.S. will encourage the central bank to cut interest rates.

Yields on two-year benchmark debt slumped 11 basis points, or 0.11 percentage point, to 7.70 percent at the close in Istanbul, the lowest since Aug. 6. The lira depreciated less than 0.1 percent to 1.7950 per dollar, retreating for the first time in three days.

Turkey may be raised to ‘BBB-’ from ‘BB+’ should it make progress with re-balancing the economy, slowing inflation and narrowing the current-account deficit, Fitch said in an e-mailed report today. Achieving a soft-landing for the economy was “the main constraint on an upgrade to investment grade,” Fitch said in the report.

“If an upgrade from Fitch materializes, this will make Turkey’s long-term foreign currency rating an investment grade, which should attract even more investor interest,” Esther Law, an emerging market strategist at Societe Generale in London, said in an e-mailed note.

Minutes of the Federal Reserve’s most recent meeting showed U.S. policy makers favored further stimulus measures unless the economy shows signs of sustainable recovery. People’s Bank of China Governor Zhou Xiaochuan said yesterday adjustments to rates and bank reserve requirements are still possible after the central bank stepped up temporary cash injections this month.

Monetary Easing

“It will be easier for the central bank to loosen if there is more easing abroad,” Ugur Kucuk, a fixed-income strategist at Is Securities in Istanbul, said in e-mailed comments.

The central bank lent today 5.5 billion liras ($3 billion) at its lowest 5.75 percent funding rate, up from 5 billion liras provided last week in its one-week repurchase agreements auction.

The bank has lent at its minimum policy rate since June 4, bringing down average borrowing costs for lenders. The charge fell to 6.81 percent on Aug. 16, the lowest since Nov. 21, 2011, according to data compiled by Bloomberg.

Central Bank Governor Erdem Basci, who varies interest rates daily between 5.75 percent and 11.5 percent to rein in credit growth and control inflation, said on July 26 he may narrow the band.

A preliminary reading of 47.8 for China’s purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics compares with July’s final 49.3 figure. If confirmed, it would be the lowest level since November and the 10th month that the reading has been below 50, the longest run in the index’s eight-year history.

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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