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Turkish Bond Yields Drop as Inflation Slows More Than Estimates

Turkish bond yields fell after inflation in November slowed beyond all economists’ expectations on a decline in food prices.

Yields on benchmark two-year lira debt dropped as much as 10 basis points to 7.61 percent and traded at 7.64 percent at 10:52 a.m. in Istanbul. The lira gained 0.1 percent to 1.4820 per dollar and the ISE National 100 share index rose 0.3 percent to 67,168.00.

The annual inflation rate fell to 7.3 percent last month from 8.6 percent in October, the statistics agency in Ankara said in an e-mailed report today. The rate was lower than all eight economists expected in a Bloomberg survey, which estimated a decline to 8.2 percent.

“The reading should calm down any of the hawks out there,” Simon Quijano-Evans, chief economist for emerging Europe the Middle East and Africa at CA Cheuvreux in Vienna, said in an e-mailed report to investors. “Good for bonds and this just confirms our view that the central bank is not going to hike rates in 2011.”

Inflation will slow in the coming months and increases to the central bank’s benchmark rate of 7 percent are unlikely before the last quarter of 2011, governor Durmus Yilmaz said on Oct. 26.

Food prices fell 1.9 percent from a month earlier in November, the agency said. The measure of core inflation that excludes food and energy prices rose to 2.54 percent last month from a record low of 2.5 percent in October.

The inflation data “is a message that new bond purchases by banks should focus on fixed-rate paper,” Quijano-Evans said.

Akbank TAS, the bank part-owned by Citigroup Inc., led gains in stocks, rising 0.7 percent to 8.58 liras. Turkiye Is Bankasi AS, the largest listed bank by assets, gained 1 percent to 5.98 liras.

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