Emerging Currencies Slump as Turkish Yields Soar Most in 4 Years

Emerging market currencies weakened and Turkey’s bond yields climbed the most since October 2008 as concern the U.S. will reduce economic stimulus measures curbed demand for riskier assets.

The Philippine peso dropped 1.3 percent, the most since November 2010, leading losses among 24 emerging market currencies tracked by Bloomberg. South Africa’s rand fell to a four-year low and the Russian ruble traded at its lowest to the dollar in more than a month. Yields on two-year benchmark Turkish notes climbed 26 basis points, or 0.26 percentage point, to 5.52 percent at the close in Istanbul.

U.S. consumer confidence advanced to the highest in more than five years, a Conference Board report showed yesterday, fueling bets the Federal Reserve will reduce asset purchases. Turkey and South Africa are among the “large emerging-market current-account deficit economies” being hit harder by the sell-off as investors pursue “quality rather than yield,” UBS AG analysts Bhanu Baweja and Manik Narain in London wrote in a research note today.

“We still need to wait for next week’s nonfarm payroll for a definite assessment, but for the time being the general market momentum is clearly not working in favor of global emerging markets risky assets,” Benoit Anne, the head of emerging-markets strategy at Societe Generale SA in London, said in an e-mailed note today.

Weaker Rand

The rand is the worst performing emerging market currency this month, losing more than 8 percent against the dollar, data compiled by Bloomberg show. The Chilean, Colombian and Mexican peso have each declined more than 3 percent in the period, while Hungary’s forint and China’s renminbi are the only two gainers.

Turkey’s current-account gap, which measures 7.3 percent of gross domestic product, is the third biggest of about 60 countries tracked by Bloomberg, while South Africa’s is the fourth at 6.5 percent.

The Fed buys $85 billion of Treasury and mortgage debt a month to support the domestic economy. Chairman Ben S. Bernanke said on May 22 the central bank may cut the pace of buying “in the next few meetings” if economic conditions improve.

Nonfarm output data are due to be released on June 5, according to data compiled by Bloomberg.