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Turkish Yields Drop on Lower Borrowing Cost, Steady Lira Bets

Turkish yields dropped on speculation the Treasury will meet borrowing targets in next week’s auctions after strong demand from banks in the year’s first two debt sales yesterday.

Yields on two-year benchmark debt decreased 15 basis points, or 0.15 percentage point, to 10.70 percent at 12:57 p.m. in Istanbul, a Turk Ekonomi Bankasi AS index of the securities showed, heading for the lowest level in three weeks. The lira appreciated 0.3 percent to 1.8372 per dollar in its third day of gains, leading emerging-market currencies in Europe, the Middle East and Africa this year, after losing 18 percent last year to be the worst performer worldwide.

“The sales were quite good in yesterday’s auctions and it appears that the upcoming auctions will be comfortable” for the Treasury, Emre Balkeser, head of trading at Garanti Investment in Istanbul, said in e-mailed comments.

The Ankara-based Treasury sold a total net 4.58 billion liras of 14-month bonds and six-year floating rate notes yesterday, ahead of a repayment of 4 billion liras of debt to investors today. The Treasury will hold a total of six auctions this month to borrow 14.4 billion liras in domestic debt, according to a program published on Dec. 30. The Treasury will repay 17.8 billion liras of domestic debt this month, the highest monthly repayment in a year.

“What favors Turkish bonds at the moment might be the fact that the Turkish lira might have found its low against the majors thanks to the support of the central bank,” Felix Herrmann, analyst at DZ Bank AG in Frankfurt, said in e-mailed comments. The lender’s three-month target for two-year lira bonds is at 10.20, he said. “We are therefore still bullish on Turkish bonds.”

Turkey’s central bank has sold at least $15 billion since August and tightened borrowing costs of other lenders to shore up the lira.

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