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Turkish Bond Yields Rise First Day in Six as Inflation Surges

Yields on two-year Turkish benchmark debt climbed for the first day in six and the lira erased gains after inflation accelerated in November, spurring bets for a tighter monetary policy.

The yield climbed eight basis points, or 0.08 percentage points, to 10.36 percent at 10:42 a.m. in Istanbul, a Turk Ekonomi Bankasi index of the securities showed. The lira erased earlier gains and weakened less than 0.1 percent at 1.8312 per dollar in a third day of depreciations.

The rate of inflation rose to 9.5 percent from 7.7 percent a month earlier, the statistics office in Ankara said on its website today, the highest level since April 2010. The median estimate of eight economists surveyed by Bloomberg was 9 percent. In the month, prices rose 1.7 percent. Core inflation rate rose to 8.18 percent in November.

“The fact that the core numbers keep on ticking higher while the economy slows is a worrisome issue and will force the central bank to keep even closer to their tightening bias,” Ozhan Antero Atilla, emerging-markets analyst at Danske Bank A/S in Copenhagen, said in e-mailed comments.

Turkish yields on two-year debt climbed from 8.4 percent at the end of September, the largest increase among 16 developing nations tracked by JPMorgan Chase & Co., on concern that the central bank policy of fighting inflation without raising borrowing costs will fail to contain price increases.

Policy makers introduced a dual interest-rate system to curb lending, support the lira and narrow a gaping current-account deficit, a policy Citigroup Inc. Economists Ilker Domac and Gultekin Isiklar in a report dated Dec. 2 described as “unsustainable” due to its cost to the market.

The Turkish currency lost 15.7 percent this year, making it the second-worst performer among more than 20 emerging market currencies tracked by Bloomberg.

Instead of raising the one-week repurchase rate from a record low of 5.75 percent, Central Bank of Turkey Governor Erdem Basci said on Oct. 26 that the policy makers will vary banks’ borrowing costs daily between the benchmark and an overnight rate of as much as 12.5 percent.

The bank offered to provide 11 billion liras ($6 billion) in one-week repo to banks today.

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