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Turkey Yields Head for Biggest Weekly Jump This Year on Sales

Turkey’s bond yields headed for the biggest weekly jump this year as weaker demand for government debt and the central bank cutting funding by half spurred sales. The lira retreated.

Yields on two-year benchmark fixed-income securities rose for a fourth day, surging 11 basis points, or 0.11 percentage point, to 7.84 percent at the close in Istanbul. It has climbed 35 basis points so far this week, the most since Dec. 30. The lira weakened 0.2 percent to 1.7851 per dollar, paring its appreciation this year to 5.9 percent.

The Treasury will sell 3.1 billion liras ($1.74 billion) of Sept. 11, 2013 bonds next week to meet its debt sale target of 16 billion liras this month, more than double the total for the previous three months. Investors bid for 1.06 times the amount sold in an auction of benchmark debt two days ago, the lowest bid-to-cover ratio since at least January 2008, according to Bloomberg data. The central bank today lent 3 billion liras in the one-week repurchase agreements auction at its lowest 5.75 percent policy rate, half the amount it provided a week earlier.

Demand at the debt auction was “poor and the central bank squeezed liquidity today,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS, said in e-mailed comments. “This appears to be a signal that the bank will not loosen its policy further.”

The average cost of funding from the central bank for Turkish lenders fell to 6.84 percent two days ago, the least since November 2011.

“According to our calculations, that rate has now risen to 7.01 percent,” Ali Cakiroglu, a strategist at HSBC Private Bank in Istanbul, said in an e-mailed note.

Central bank Governor Erdem Basci introduced an interest-rate corridor in October to execute the bank’s unique monetary policy, switching between rates of 5.75 percent and 11.5 percent on a daily basis to tame inflation.

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