Turkish bonds yields climbed for a second day as the central bank restricted funding at an auction of repurchase agreements today. The lira rose, extending the biggest weekly gain in the world.
Two-year benchmark note yields rose 10 basis points to 11.05 percent, near the highest since January 2012 and taking this month’s increase to 95 basis points, as of 5:24 p.m. in Istanbul. Turkey’s currency rose 0.4 percent to 2.2611 per dollar, trimming a gain this week to 3.3 percent, the most among 24 emerging-market peers monitored by Bloomberg.
The central bank scaled back the size of its auctions of one-week repos in the past two days as it seeks to reduce the availability of funding to shore up the lira. The bank offered 10 billion lira ($4.4 billion) of repos today and 6 billion lira yesterday, down from 33 billion lira on Jan. 29, just after policy makers more than doubled the benchmark interest rate to 10 percent at an emergency meeting.
The repo funding was insufficient and forced banks to borrow at the higher overnight rate, Erkin Isik, a strategist at Turk Ekonomi Bankasi AS, wrote in an e-mail. “Apparently the central bank policy will remain tight.”
The bank sold one-week repos at 10 percent, while providing 1.72 billion lira to overnight borrowers at 11.5 percent and 510 million lira at 12 percent. Funding costs in Turkey climbed to 9.26 percent on Jan. 29, the highest since June 2012, according to the most recent data from the central bank.
The central bank said today it would sell a minimum $50 million for liras on Feb. 3, the lowest amount since Dec. 11.
The lira’s gains this week trimmed this month’s drop to 5.1 percent after a corruption probe that ensnared the government and reductions in Federal Reserve stimulus sent the currency tumbling to successive records.
Policy makers raised the benchmark one-week repo rate from 4.5 percent and also lifted the overnight lending and borrowing rates to 12 percent from 7.75 percent and to 8 percent from 3.5 percent, respectively.
“The Turkish central bank delivered the adjustment required in order to address the economy’s growing imbalances” and it has the ability to tighten the funding cost further, Dina Ahmad, a London-based strategist at BNP Paribas SA, wrote in an e-mailed note.
BNP shifted its Turkey asset allocation to “slight” overweight after having an underweight stance over the past few months.
Turkey’s trade gap expanded to $9.92 billion in December, the highest level since September 2011, from $7.12 billion a year earlier, according to the state statistics institute. The median estimate in a Bloomberg survey was for a $7.1 billion deficit.
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