Turkey Yields Fall to 20 Month-Low on Policy Bets; Lira Gains

Turkey’s bond yields sank to the lowest in almost 20 months on bets the central bank will extend its loosening policy after the European Central Bank’s bond- buying program bolstered risk appetite. The lira gained.

Yields on two-year benchmark debt retreated eight basis points, or 0.08 percentage point, to 7.45 percent at 12:35 p.m. in Istanbul, declining for a fourth day to the weakest level since Jan. 20, 2011. The lira appreciated less than 0.1 percent to 1.8081 per dollar, strengthening for a third day.

Turkey’s central bank has provided funding for lenders at the cheapest rate in its daily one-week repurchase agreements auctions since June 4. This sent the overnight cost of borrowing in the interbank market to 5.01 percent today, two basis points off its lowest in a year. ECB President Mario Draghi announced yesterday unlimited and sterilized bond-purchases at the short- end to stem the region debt crisis. Turkey sends 34.3 percent of its exports to the European Union.

“Together with the ECB decision, risk appetite strengthened and the lira advanced and this created the expectation that the central bank can continue with the loose monetary policy,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS (TEBNK), said in e-mailed comments.

The Turkish central bank lent 6.5 billion liras ($1.09 billion) in one-week repo at its lowest 5.75 percent policy rate today. It provided 2 billion liras in one-month repo.

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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