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Turkey Yields Climb to Two-Year High, Lira Sinks on Inflation

Turkish yields rose to a two-year high and the lira weakened as inflation in Istanbul accelerated the most in a year and Greece’s plan to hold a referendum on its bailout prompted investors to sell riskier assets.

The yields on the two-year benchmark bond climbed 35 basis points, or 0.35 percentage point, to 10.09 percent, a Turk Ekonomi Bankasi AS index of the securities showed, the highest level since August 2009 on a closing basis, at 4:30 p.m. in Istanbul. The lira fell 1.4 percent to 1.7957 per dollar, the lowest level in one week.

Prices in Istanbul, Turkey’s biggest city, rose 3.1 percent in October, the biggest month-on-month increase in a year, the chamber of commerce said, two days before a report on national inflation. The 10-year yield jumped by 133 basis points in October, the most since 2008, after the central bank predicted inflation will accelerate and doubled borrowing costs for lenders to cap loan growth.

“Yields will rise to 10 percent or even higher depending on October inflation data,” said Emre Balkeser, head of trading at Garanti Securities in Istanbul. “There are institutions which expect October inflation at 3 to 3.5 percent,” Balkeser said in e-mailed comments.

Inflation is likely to increase to 7 percent in October from 6.2 percent the previous month, the median estimate of eight economists surveyed by Bloomberg showed. The central bank said last month inflation will accelerate in the remainder of the year and “significantly” exceed the target of 5.5 percent for the end of 2011.

The statistics office in Ankara will release October data on Nov. 3.

Emerging-market stocks and currencies declined today after Greek Prime Minister George Papandreou pledged to hold a referendum. Fitch Ratings said the proposal posed a threat to Europe’s financial stability.

The extra yield investors demand to hold Turkish debt rather than U.S. Treasuries jumped 20 basis points to 328 today, according to JPMorgan Chase & Co.’s EMB Global Index. The cost of insuring five-year Turkish debt rose for the third day. Credit-default swaps, which rise as perceptions of creditworthiness worsen and act as insurance for the buyer against losses on bonds, climbed 18 basis points to 253, CMA data show.

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