Turkey Bond Yields Drop to Record Low as Trade Deficit Narrows

Turkey’s bond yields dropped to a record as its trade deficit contracted for a 12th month on weaker domestic demand, supporting bets the central bank will cut interest rates next month.

Yields on two-year benchmark debt slid 5 basis points, or 0.05 percentage point, to 5.93 percent at the close in Istanbul, the lowest since at least 2005. The lira lost less than 0.1 percent to 1.7864 per dollar.

Turkey’s trade gap shrank to $5.5 billion in October from $8 billion a year earlier, the statistics office in Ankara said on its website today. The reduction will help narrow the nation’s current-account deficit, which contracted for an 11th month in September. The inflation rate fell to 7.8 percent last month from 10.5 percent at the end of 2011.

“Today’s data supports the central bank’s accommodative monetary policy and, in this sense, a rate cut,” Ibrahim Aksoy, an economist at Seker Securities in Istanbul, said in an e-mailed statement today.

The trade shortfall was expected at $7.5 billion, according to the median estimate of eight economists surveyed by Bloomberg. Imports dropped 5.6 percent to $18.8 billion and exports increased 12 percent to $13.3 billion.

A rate reduction “would favor economic activity and prevent real appreciation of the lira in a lower-than-expected current-account deficit environment,” Aksoy said.

Turkey’s monetary policy committee is due for a meeting on Dec. 18.

Lira Advances

Fitch Ratings raised Turkey to investment grade on Nov. 5 and central bank Governor Erdem Basci said on Nov. 12 he won’t tolerate any unwarranted currency gain jeopardizing the country’s external balances.

The lira’s decline today pares its gain this month to 0.3 percent. The benchmark yield has slumped 115 basis points this month in the biggest retreat among the emerging markets tracked by Bloomberg.

The improvement in risk appetite for Turkish assets may increase “appreciation pressure” on the lira, according to a central bank report on financial stability published yesterday on its website.

“Given today’s merchandise trade figures, October’s current-account deficit is also likely to show a sharp narrowing,” Melis Metiner, an economist at HSBC Bank AS in Istanbul, said in an e-mailed note.

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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