Turkey’s bond yields surged the most since October 2008 as investor speculation of a tapering in U.S. economic stimulus measures damped appetite for riskier assets. The lira headed for its lowest level to the dollar in a year.
Yields on two-year benchmark notes climbed 26 basis points, or 0.26 percentage point, to 5.52 percent at the close in Istanbul, the highest level in more than a month. The lira depreciated 0.3 percent to 1.8636 per dollar, the lowest level on a closing basis since May 31, 2012.
Investors stepped up bets on reduced Federal Reserve easing after U.S. consumer confidence climbed to the highest level in more than five years, according to a Conference Board report released yesterday. Turkey is among the “large emerging-market current-account deficit economies” being hit harder by the selloff as investors look for “quality rather than yield,” Bhanu Baweja and Manik Narain, analysts at UBS AG, wrote in a research note today.
“Turkish bonds are following 10-year U.S. Treasuries,” Baris Buyukdemir, general manager at Ceros Securities in Istanbul, said in a phone interview. “The climb here won’t end unless the gain in 10-year yields ends over there.”
The yield on benchmark 10-year U.S. debt surged 16 basis points to 2.17 percent yesterday.
The lira has lost 4.3 percent this year, with analysts forecasting a drop to 1.90 per dollar by the end of the year, according to forward rates data compiled by Bloomberg. The central bank in Ankara cut its benchmark one-week borrowing rate by a larger-than-expected 50 basis points to 4.5 percent on May 16.
“The lira’s depreciation supports exports while helping limit imports,” Buyukdemir said. “This is something the central bank wants, due to concern that the current-account deficit could widen.”
The MSCI Emerging Markets Index slumped 0.7 percent to 1,023.48, headed for the lowest level since April 26. The Borsa Istanbul National 100 index fell 2.9 percent to 87,346.01, retreating for a fifth day in its longest losing streak since July 23.
“This is almost full-blown risk aversion we are going through in global emerging markets,” Benoit Anne, head of emerging-market strategy at Societe Generale SA in London, said in an e-mailed note to investors. “The general market momentum is clearly not working in favor of global emerging market risky assets.”
If U.S. 10-year yields approach 2.5 percent over the course of the year from their current level of 2.14 percent, Turkish benchmark yields could climb to about 6 percent, Ceros’s Buyukdemir said.
The Fed buys $85 billion of Treasury and mortgage debt a month to support the U.S. 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 show a sustained improvement.