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Turkey Yields Decline to Record Low on Greek Aid, Rate Cut Bets

Updated on

Nov. 27 (Bloomberg) -- Turkey’s bond yields dropped to a record low after an easing of terms on emergency aid for Greece boosted risk appetite for emerging-market assets and on bets interest rates will probably be cut next month.

Yields on two-year benchmark debt fell for a second day, declining seven basis points, or 0.07 percentage point, to 6.05 percent at the close in Istanbul, the least since at least 2005. The lira appreciated 0.2 percent to 1.7926 per dollar, the strongest level since Nov. 9.

European finance ministers cut the rates on Greece’s bailout loans, suspended interest payments for a decade, gave the nation more time to repay and engineered a Greek bond buyback. The country was also cleared to receive a 34.4 billion-euro ($44.7 billion) loan installment in December.

“Today’s move can be tied to the optimism in the world markets after the Eurogroup meeting yesterday,” Inan Demir, chief economist at Finansbank AS, in Istanbul, said in e-mailed comments. The drop in the yields is “driven by the short-term improvement in the risk appetite,” Inan said.

The retreat in yields today brings the drop this month to 103 basis points. Yield have fallen as Fitch Ratings upgraded Turkey to investment grade on Nov. 5 and central bank Governor Erdem Basci said on Nov. 12 he won’t tolerate any unwarranted currency gain jeopardizing the country’s external balances. He said the central bank will act if an inflation-adjusted measure of lira’s strength showed the currency appreciating to overvalued territory.

Rate Cut

The central bank has cut the upper end of its so-called interest rate corridor three times in as many months, narrowing the upper end to 9 percent from 12.5 percent and keeping the lower end unchnaged at 5 percent. It has also kept the policy rate steady at 5.75 percent since Aug 4, 2011.

Investors expect the bank will reduce interest rates at its monetary policy meeting on Dec. 18 to stimulate a slowing economy.

The nation’s confidence index for manufacturers fell to 101 in November, the lowest in 2012, the central bank said yesterday. Capacity utilization for the same month also declined to 74 percent from 74.9 percent in October, the bank said.

Turkey’s economic growth fell to 2.9 percent in the second quarter from 9.1 percent a year earlier.

“We are expecting a 25 basis-point reduction both in the policy rate and the lower end of the corridor in December,” Gizem Oztok Altinsac, an economist at Garanti Securities in Istanbul, said in an e-mailed note today.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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