Turkey Yields Head for 5-Week High as Lira Spurs Tightening Bets

Turkey’s benchmark bond yields headed for their highest level in five weeks as a weaker currency fueled speculation the central bank will raise borrowing costs for the nation’s lenders.

Yields on two-year notes rose 19 basis points, or 0.19 percentage point, to 8.42 percent at 12:01 p.m. in Istanbul, the highest since Sept. 30 on a closing basis. The lira depreciated to its lowest level in a month yesterday and traded 0.2 percent stronger at 2.0323 per dollar today.

The central bank declared Nov. 11 and Nov. 12 as extra-tightening days during which it does not provide daily liquidity at its lowest funding rate of 4.5 percent, implying a hawkish monetary stance. The move will increase the average funding rate to 6.50 percent if it is repeated every week in November, Erkin Isik, a strategist at Turk Ekonomi Bankasi AS (TEBNK) in Istanbul, wrote in e-mailed comments. Normally, the bank refrains from lending at the minimum rate to just once a week.

“The risk of further tightening from the central bank is priced,” Isik wrote. “The short-term bond yields and exchange rates are moving very much in tandem.”

The 30-day moving average for the commercial banks’ cost of funding is 6.30 percent, according to data compiled by Bloomberg.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.