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Turkish Yields Fall to Lowest Since March After Inflation Slows

Turkish bond yields fell to the lowest level in almost three months after inflation slowed faster than economists expected in May.

Yields on two-year benchmark debt declined 10 basis points, or 0.10 percentage point, to 9.25 percent at the 5 p.m. close in Istanbul, the lowest on a closing basis since March 9. The lira rose for a second day, up 0.5 percent to 1.8487 per dollar.

Inflation slowed to 8.3 percent last month from 11.1 percent in April, the statistics office said on its website today. The rate was expected at 9 percent, according to the median estimate of 11 economists in a Bloomberg survey. Core inflation, excluding items such as food and energy, slowed to

7.7 percent from 8.2 percent. Consumer prices fell 0.2 percent in the month.

“This figure is way below expectations and will pull down estimates for full-year inflation,” Emre Balkeser, head of trading at Garanti Investment in Istanbul, said in e-mailed comments.

Central bank Governor Erdem Basci increased the cost of funding for banks to as high as 10.83 percent in May, the most since mid-January, to support the lira. The central bank withheld lending at its 5.75 percent lower rate for a third day as the bank tightens to support the lira as it pursues a 6.5 percent year-end inflation target.

“We will see it declining further on the past effects of monetary tightening,” Aurelija Augulyte, an emerging-market economist at Nordea Bank AB in Copenhagen, said in e-mailed comments. Meeting the bank’s inflation target would be a “challenge” as the leading indicators suggest recovery re-accelerated and the lira weakened, she added.

The lira has pared some of this year’s gains to trade 2.2 percent stronger from the end of last year. It fared better than all other emerging-market currencies except the Colombian peso.

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