The lira weakened for the first time in three days and bond yields rose as investors bet on a smaller-than-expected increase in interest rates next week.
The currency depreciated as one-year interest-rate swaps, a gauge of future interest-rate expectations, plunged the most in seven years. Twenty-two of 24 emerging-market currencies were either unchanged or lower against the dollar before Federal Reserve Chairman Ben S.Bernanke delivers a semi-annual monetary policy report to U.S. Congress at 8:30 a.m. in Washington today. Turkey’s central bank said on July 15 “a measured step to widen the interest-rate corridor” will be on the agenda at its meeting on July 23.
“The hope/expectation is that the Turkish central bank lift the lending rate by at least 100 basis points, which will send a positive message to the market,” Tim Ash, the chief emerging-markets economist at Standard Bank Plc in London, wrote in an e-mailed note today. “The fear is that if Bernanke gives a dovish commentary this week, the central bank might be modest in its move in terms of the lending rate.”
The lira lost 0.3 percent to 1.9267 by 11:11 a.m. in Istanbul, the biggest decline on a closing basis since July 5. Yields on two-year benchmark notes advanced 11 basis points, or
0.11 percentage point, to 8.96 percent, increasing for the first time in four days.
One-year swaps slumped 116 basis points to 8.10 percent in the steepest dive since August 2006, retreating from as high as
9.73 percent reached on July 15.
Bernanke said on June 19 the Fed may start slowing its unprecedented bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its latest round of quantitative easing to cap borrowing costs.
“The lira is depreciating slightly because American bourses are cautious before today’s Bernanke decision,” Emre Balkeser, the head of trading at Garanti Securities in Istanbul, said in e-mailed comments.