Turkish bond yields dropped to the lowest level in almost four months after a lira rally this year prompted the central bank to provide cheaper funding and keep currency appreciation under control.
Yields on the benchmark two-year debt fell 15 basis points, or 0.15 percentage point, to 9.21 percent, the first decline in four days and the lowest level since Oct. 20, raising this week’s retreat to 25 basis points. The lira strengthened 0.3 percent to 1.7566 per dollar, lifting this year’s gains to 7.7 percent, the third-biggest appreciation among emerging markets in Europe, Africa and the Middle East.
Turkey’s central bank lent 7 billion liras ($4 billion) today in a one-week repurchase agreement auction at its lowest annual funding rate of 5.75 percent, after receiving 28.4 billion liras in bids. The bank in Ankara also provided 5 billion liras in a one-month repo auction at an average annual rate of 10.21 percent against bids of 19.7 billion liras. The rate charged today was lower than the 10.68 percent levied in the previous one-month auction on Feb. 10 of the same amount.
“The central bank talked very dovish in its last communications meeting and it did not want a speedy appreciation of the lira,” Tolga Senefe, head of treasury at Anadolubank AS in Istanbul, said in an e-mailed response to Bloomberg’s questions.
The lira declined 18 percent in the biggest depreciation worldwide last year as the central bank cut interest rates to a record low of 5.75 percent and doubled reserve requirement to curb a widening current account deficit that the bank said threatened the nation’s financial stability. The bank halted lending at the 5.75 percent rate for two weeks after the lira weakened to a record low of 1.9224 against the dollar on Dec.28.