Turkey Yields Slump to Record on Speculation of More Rate Cuts

Turkey’s benchmark bond yields sank for a fifth day to a record as investors speculated the central bank would continue to lower interest rates.

Yields on the two-year notes dropped before the release of the bank’s quarterly inflation review tomorrow. The next rates decision is scheduled for May 16. The bank has lowered at least one of its main three interest rates in every month since September, including a 50 basis point cut to the benchmark one- week repo rate this month to a record 5 percent.

“The market is currently pricing in new rate cuts,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS (TEBNK) in Istanbul, said in e-mailed comments today. “The rates outlook from now on will depend on the central bank’s position.”

Yields on the two-year notes slipped 16 basis points, or 0.16 percentage point, to 5.22 percent at the close in Istanbul, the lowest level on record. One-year interest rate swaps, which investors use to speculate on the future direction of rates, slumped 18 basis points to 5.62 percent, the steepest slide since Feb. 15 and also the lowest on record.

Turkish bonds are the best performers across 20 major emerging markets over the past 12 months, with yields declining 396 basis points, according to data compiled by Bloomberg. The lira strengthened 0.3 percent to 1.7936, extending its gain this month to 0.9 percent.

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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