Turkish Bond Yields Fall Most in Five Weeks After S&P Upgrade

Turkish benchmark bond yields dropped the most in five weeks after Standard & Poor’s raised the country’s foreign currency rating to one level below investment grade.

Yields on two-year benchmark debt declined five basis points, the most since Feb. 19, to 6.36 percent at 10:46 a.m. in Istanbul. The yield, up 18 basis points this quarter, tumbled as much as eight basis points, or 0.08 percentage point, after the one-step upgrade to BB+.

The economy appears to be “slowly rebalancing, without undermining its relatively strong fiscal performance,” the rating company said yesterday. S&P left Turkey’s outlook at stable and said the higher rating also reflects Turkey’s progress toward ending its four-decade long fighting with Kurdish militants, which might lead to lower security-related costs and higher cross-border trade flows.

“S&P’s move strengthens our view and we reiterate our expectation that Moody’s with its positive outlook will be the next upgrade during 2013,” Ata Invest head of research Cemal Demirtas and chief economist at Gulay Elif Girgin said in an e- mailed note.

Turkey was upgraded to investment grade by Fitch Ratings in November. Moody’s Investors Service ended hopes of an imminent upgrade to investment ranking in January, saying the nation needs further progress in reducing its current-account deficit. Economy Minister Zafer Caglayan said Turkey’s performance has long deserved investment grade and S&P and Moody’s are expected to upgrade the country “in the coming period.”

The lira weakened 0.2 percent to 1.8168 a dollar in its second day of declines. The currency has retreated 1.8 percent this quarter, headed for its worst performance since the third quarter of 2011.

“With two agencies rating Turkey on the verge of investment grade now, arguably the chances of Turkey achieving the much-desired second investment-grade rating has increased,” Finansbank AS analysts Inan Demir and Deniz Cicek wrote 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: Claudia Maedler at cmaedler@bloomberg.net

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