Turkish Bonds Rise as Emerging Market Currencies Rally

Turkey’s two-year bonds rose the most in a month after weaker-than-forecast economic data in the euro area and the U.S. revived appetite for emerging markets as investors bet monetary policy will remain loose for longer. Stocks (XU100) were little changed, while the lira rose.

The yield on two-year government bonds fell 20 basis points to 9.25 percent, the biggest decline among emerging-market local currency debt. The Borsa Istanbul 100 stock index fell 0.1 percent. The lira rose 0.2 percent to 2.1515 per dollar at 5:46 p.m. in Istanbul, gaining for a second day.

“Recent economic activity data from developed countries came in weak,” Erkin Isik, a strategist at Turk Ekonomi Bankasi, said by e-mail from Istanbul. “That increased expectations for monetary conditions to remain supportive for longer.”

Expectations for continuing monetary stimulus from central banks and low interest rates benefit emerging markets by encouraging investors to move into higher-yield assets. The lira appreciated against the U.S. dollar with 22 of 24 emerging market currencies, according to data compiled by Bloomberg.

The euro-area economy stalled in the three months through June, after growing 0.2 percent in the prior period, the European Union’s statistics office in Luxembourg said today. The median of 37 forecasts in a Bloomberg survey was for growth of 0.1 percent. Jobless claims in the U.S. climbed by 21,000 to 311,000 in the period ended Aug. 9, the highest in six weeks, a Labor Department report showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg called for 295,000.

Turkiye Garanti Bankasi AS (GARAN), the country’s largest listed bank by market capitalization, rose 1 percent to 8.08 liras at the close. Coca-Cola Icecek AS (CCOLA) climbed 2.1 percent to 51.25 liras, the highest since Aug. 4.

The lira earlier retreated as much as 0.3 percent after Turkey’s current-account deficit widened more than economists predicted. The gap was $4.1 billion in June, up from a revised $3.5 billion the previous month, central bank data showed today. That missed the $3.7 billion median estimate of six economists in a Bloomberg survey.

“Carry is back, yet the sentiment remains fragile,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA, said by e-mail. Turkey is not well prepared for the volatility in capital flows when central banks eventually unwind their stimulus, and “this along with the wider current account deficit this morning is why we’re seeing limited lira strength,” she said.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net Kim McLaughlin, John Bowker

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