Turkey Yields Fall 5th Day to Record After Bank Signals Rate Cut

Turkey’s bond yields dropped for a fifth day to a record as the central bank reiterated yesterday it may cut interest rates after the inflation rate slumped to the lowest in 14 months.

Yields on two-year benchmark debt fell three basis points, or 0.03 percentage point, to 5.7 percent at 11:51 a.m. in Istanbul, the lowest since at least 2005. The lira strengthened for a third day, gaining less than 0.1 percent to 1.7839 per dollar.

“A measured cut” may be considered in its policy rate of 5.75 percent and overnight borrowing rate of 5 percent “in the forthcoming period,” the central bank said to economists from Turkish banks in a presentation published on its website in Ankara yesterday. The inflation rate slid to 6.4 percent in November, the lowest level since September 2011, the statistics agency in Ankara said on Dec. 3. Benchmark yields have slumped 38 basis points in their five-day losing streak.

The central bank “again hinted at an interest-rate cut this week,” Ercan Erguzel, an economist at Denizbank AS (DENIZ) in Istanbul, said in e-mailed comments. “The latest inflation data is the most important reason behind the steep fall in yields over the past five days.”

Two-year lira note yields have plunged 531 basis points this year, the biggest drop worldwide among emerging markets. Turkey’s Treasury sold $1 billion of January 2041 dollar notes at a yield of 158 basis points over U.S. Treasuries due August 2042, pre-financing next year’s funding, according to a statement today.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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