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Turkey Bond Yields Jump Most in Ten Days on Higher Inflation

Turkey’s bond yields rose the most in 10 days as inflation quickened faster than expected in January, endangering the central bank’s year-end target for price increases. The lira weakened.

The advance in yields trimmed this year’s rise to 25 basis points, the third-largest among 18 emerging markets tracked by Bloomberg, as a 1.65 percent inflation rate for January beat a Bloomberg estimate of 10 economists, adding to concern the central bank may tighten monetary policy.

“It is possible that inflation will exceed 8 percent in summer,” Gizem Oztok Altinsac, an economist at Garanti Investment in Istanbul, wrote in e-mailed comments today. “A reversal of decline in food prices in 2012 may pose a risk to inflation.”

Yields on two-year benchmark bonds climbed four basis points at 5.84 percent, the biggest jump since Jan. 25. The lira lost 0.4 percent to 1.7568 per dollar by 5:12 p.m. in Istanbul, retreating from its highest level since February 2012.

Turkey’s inflation rate exceeded the 1.14 percent Bloomberg estimate. The annualized rate climbed 7.31 percent in January, compared with 6.16 percent in December, according to data released by the Ankara-based Statistics Institute today.

Local bonds advanced as Central bank Governor Erdem Basci cut his 2014 inflation target to 4.9 percent on Jan. 29 while retaining 2013’s estimate at 5.3 percent. The bank warned on Jan. 22 of a potential increase in January because of higher tobacco prices and said the trend will revert downward in subsequent months.

Lira Gain

The lira has appreciated 1.5 percent this year, extending last year’s 6 percent advance against the dollar, even as the central bank cut interest rates by 0.25 percentage point on Jan. 22.

“Many people were surprised that they cut rates and the fact that headline inflation is going higher would also make that move appear a little more ambitious,” Tim Ash, the chief emerging-market economist at Standard Bank Plc in London, said in e-mailed comments. “Higher headline inflation would normally imply more caution in terms of the rate move.”

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