Turkey Lira Trims Biggest Weekly Gain in 20 Months as Bonds Drop

Turkey’s lira weakened the most in a week, paring the biggest weekly gain since January 2012, as the nation’s two-year bonds fell amid declines in emerging-market assets.

The lira depreciated 1 percent to 1.9788 per dollar at 3:55 p.m. in Istanbul, trimming the five-day advance to 2.3 percent. The currency was the worst performer after South Africa’s rand among 10 emerging-market currencies in Europe, Middle East and Africa monitored by Bloomberg. The yield on benchmark two-year notes rose seven basis points, or 0.07 percentage point, to 7.89 percent, after tumbling 83 basis points yesterday.

“Normally what should be a medium-term movement happened in a single day,” Bora Tamer Yilmaz, an Istanbul-based economist at Ziraat Investment, a unit of Turkey’s biggest state-owned lender TC Ziraat Bankasi AS, said in e-mailed comments. “Still, this looks like a healthy correction to me.”

The lira strengthened as much as 2.8 percent on Sept. 18, after the U.S. Federal Reserve decided to keep its bond-buying program intact, surprising economists surveyed by Bloomberg who had forecast a reduction. The Fed’s move boosted appetite for riskier developing-nation assets, pushing the Borsa Istanbul National 100 Index into a bull market and sending two-year bonds up the most since June.

The Fed-induced respite doesn’t change the underlying picture for the lira, which is “vulnerable due to current-account dynamics, social unrest and Syria,” according to Hans Gustafson, an emerging-markets strategist at Swedbank AB (SWEDA) in Stockholm.

The current-account gap will widen to 6.9 percent of gross domestic product this year from 6 percent in 2012, according to the median of 17 estimates in a Bloomberg survey. Turkey witnessed some anti-government rallies earlier this month after nationwide protests in June.

“The lira could weaken past 2 per dollar again,” Gustafson said.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

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

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