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Turkey Yields Rise First Day in 4 After Bomb Attack; Lira Falls

Turkey’s bond yields rose for the first time in four days on concern conflict with neighboring Syria will escalate after a bomb attack killed nine people and as borrowing costs climbed in the interbank market. The lira weakened.

Yields on two-year benchmark debt climbed eight basis points, or 0.08 percentage point, to 7.81 percent by the close in Istanbul, the highest in a week. The lira depreciated 0.3 percent to 1.7971 per dollar, falling from the strongest level since Aug. 10.

The bombing in the southern city of Gaziantep on the second day of a three-day religious holiday came after several clashes in the southeast between the army and the Kurdistan Workers’ Party or PKK. The group, which is classified as a terrorist organization by Turkey, the U.S. and the European Union, has been fighting for autonomy in largely Kurdish southeast Turkey for three decades.

“Terror is causing market stress and tension,” Murat Yardimci, head of trading at ING Bank AS, said in e-mailed comments. Investors are pricing “the possibility of continuation of these attacks and an intervention on Syria.”

The central bank lent today 1 billion liras ($557 million) at its lowest 5.75 percent funding rate, the same amount provided last week in its one-week repurchase agreements auction. The maximum the bank can lend in its daily auctions is 7.5 billion liras.

Borrowing Costs

The cost of borrowing in the interbank market rose to 6.53 percent, the biggest rise since June 29 on a closing basis.

“People in the market think that the liquidity provided by the central bank is too little,” Sercan Kiliclar, a fixed-income trader at Akbank TAS in Istanbul, said in e-mailed comments.

Turkish authorities will also examine the possibility of Syrian involvement in the attack, Huseyin Celik, deputy head of the governing Justice and Development Party, told NTV television, adding Syrian intelligence has been working with the PKK. Gaziantep province borders Syria.

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