Turkey Yields Fall on Central Bank Comments, Fitch Outlook

Turkey’s two-year note yields extended a 21-month low as central bank Governor Erdem Basci said he’d keep cutting funding costs to banks and analysts speculated Fitch Ratings will upgrade the country’s debt.

Yields on benchmark two-year bonds dropped 5 basis points to 7.17 percent at the close in Istanbul, the lowest since Jan. 12, 2011. Turkish markets closed for a national holiday at 12:30 p.m. and will reopen on Oct. 30. Today’s drop in yields extended the fall to 41 basis points this month and 384 basis points this year, the biggest decrease in major emerging markets worldwide.

The central bank can cut its cost of funding to Turkish banks to 5.5 percent from 5.72 percent, Basci said in a press conference in Istanbul today following the bank’s quarterly inflation assessment. Fitch holds a half-day conference on Turkey’s credit outlook on Nov. 8.

“The market is definitely trying to price some positive ratings news from Fitch in November,” Sengul Dagdeviren, chief economist at ING Bank AS in Istanbul, said by e-mail yesterday. “Current pricing of both bonds and equities are benefiting.”

Paul Rawkins, a senior director at Fitch, said Oct. 10 in London that Turkey’s junk rating would be reviewed by year-end and that the country’s growth is consistent with a lower inflation rate and current-account deficit.

Fitch ranks Turkey’s debt at BB+, the highest non- investment grade status, with a stable outlook. Moody’s Investors Service gives the country an equivalent Ba1 ranking, with Standard & Poor’s rates the debt one step lower at BB.

The ISE National 100 stocks index slipped less than 0.1 percent to close at 70,708.41 today, trimming this month’s gain to 6.5 percent. The lira declined 0.3 percent today to 1.8072 per dollar at 2:30 p.m. in Istanbul, paring its gain this year to 4.6 percent.

The central bank raised its year-end inflation estimate to 7.4 percent from 6.2 percent, Basci said today, bringing it in line with estimates announced Oct. 9 in the government’s medium- term economic plan.

To contact the editor responsible for this story: Benjamin Harvey at bharvey11@bloomberg.net

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