Turkish Yields Surge as Higher Reserves Spur Cash Crunch

Turkish yields rose to as high as 6 percent for the first time since January as banks sold bonds to deposit higher reserve requirements at the central bank.

Yields on two-year notes jumped 13 basis points earlier today and traded 6 basis points higher at 5.93 percent at 1:32 p.m. in Istanbul, the highest since Jan. 28 as the central bank raised lender’s reserve requirements effective from today.

“Cash is tight in the market because it is the first day of reserve payments,” said Bugra Bilgi, a hedge fund manager at Garanti Asset Management (APAM) in Istanbul, said in e-mailed comments.

The Turkish central bank raised on Feb. 19 reserve requirement ratio by 25 basis points on banks’ lira liabilities of as long as one year as it seeks to curtail loan growth to 15 percent from 20 percent. The measure will drain about 320 million liras ($177 million), $200 million of gold and $430 million from the market, as banks have options to keep lira reserves in gold, dollars and euros, it said. The reserve requirement ratio on banks’ foreign-currency liabilities of as long as three years was also raised 50 basis points to withdraw $940 million.

The central bank lent banks 6.5 billion liras in one-week repo and 1.5 billion liras in one-month repo, after getting bids of 13 billion liras and 6.53 billion liras, respectively, today.

Next week’s debt sales are also contributing to the increase in yields today, said Bilgi. “People are selling the benchmark bonds and the back-end of the curve in particular because auctions are starting next week.”

The Treasury is seeking to raise 38.5 billion liras ($21 billion) in March, April and May in the biggest three-month borrowing program since early 2011 to service 43.7 billion liras of domestic debt falling due. It will hold four domestic borrowing auctions next week, including two-year and 10-year debt, after selling 1.61 billion liras of 15-month zero-coupon bonds this week.

The lira weakened less than 0.1 percent to 1.8104 per dollar.

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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