Turkey Yields Rise for 2nd Day on Greek Elections, Tight Policy

Yields rose for a second day as investors pared exposure to riskier assets before elections in Greece this weekend and the Turkish central bank kept the amount of funding offered to lenders at the lower end of its scale.

Yields on the two-year benchmark bonds increased three basis points, or 0.03 percentage point, to 9.18 percent at the close in Istanbul.

Turkish central bank lent 1 billion liras ($547.7 million) at 5.75 percent at its one-week repurchase agreements auction, down from 3 billion liras on the same day last week. The maximum liquidity it can provide in a day is 5 billion liras and the minimum is 1 billion liras. With Greece voting June 17, polls show the main party opposing the terms of its bailout may win the election.

“Foreign investors who want to cut some risk exposure are reducing their Turkish security portfolios before the election in Greece,” Onur Bayol, a fixed-income and currency trader at Denizbank AS in Istanbul, said in e-mailed comments.

Yields fell for eight days to June 11 in the longest winning streak for bonds since 2009. Inflation in Turkey slowed to 8.3 percent in May from 11.1 percent in April, the biggest decrease since January 2003, the statistics office in Ankara said June 4. The country’s current-account deficit retreated for a sixth month to $5 billion in April from $7.7 billion a year earlier, the central bank in Ankara said on its website June 11.

“Foreign investors are both booking profits and at the same time reducing risks,” said Bayol.

Turkey’s central bank varies its funding rate on a daily basis, maintaining borrowing costs within a 5.75 percent to 11.5 percent interest-rate corridor introduced last year.

The lira appreciated 0.4 percent to 1.8214 per dollar, lifting its rise this year to 3.8 percent, the biggest appreciation among developed and emerging-market currencies after the Colombian peso.

The euro strengthened for a second day against the dollar as speculation increased Greece may seek to modify its austerity program following the June 17 election in a bid to remain in the monetary bloc.