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Turkey Bonds Drop With Lira After Corruption Probe Roils Nation

Sultan Ahmed District of Istanbul
Turkish national flags hang in the Sultan Ahmed district of Istanbul, Turkey. Photographer: Lam Yik Fei/Bloomberg

Dec. 18 (Bloomberg) -- Turkish bonds fell, with yields jumping the most in five weeks, and the lira weakened after police detained dozens including the top executive of the nation’s largest listed state bank as part of a graft probe.

Yields on two-year benchmark notes rose 26 basis points, or 0.26 percentage point, to 9.36 percent at the close in Istanbul, the most since Nov. 8. The lira depreciated 0.6 percent to 2.0483 against the dollar at 6:26 p.m. in Istanbul, the second-worst performer today among 24 emerging-market currencies monitored by Bloomberg, after the Brazilian real.

Suleyman Aslan, chief executive officer of state-run Turkiye Halk Bankasi AS, is still among 51 people being detained, Deputy Prime Minister Bulent Arinc said at a press conference today. Billionaire Ali Agaoglu, chairman of Agaoglu Group, a construction and energy company, was taken in for questioning on Dec. 17, group CEO Hasan Rahvali said that day. The Federal Reserve will release a statement and hold a press conference after its two-day monetary policy meeting ends today.

“The story of Turkey’s political stability is, unfortunately, down the tubes,” Can Oksun, head of institutional sales and strategy at Ceros Securities in Istanbul, said in e-mailed comments. “Talking about Fed tapering under these conditions is like playing the fiddle when the Titanic is sinking.”

Murat Kurum, chief executive of Emlak Konut Gayrimenkul Yatirim Ortakligi AS, Turkey’s biggest real-estate developer, was “called in” to the Istanbul Police Department, the company said yesterday. Sons of at least two cabinet ministers are also being held by the police, the state-run Anatolia news agency said on Dec. 17.

Ministers Implicated

Four ministers are implicated in the probe, Arinc said at a press conference in Ankara today. The government believes they are “innocent,” the deputy prime minister said as he called for a swift conclusion to the investigation in televised comments.

The Borsa Istanbul National 100 Index fell as much as 3.9 percent before closing 0.7 percent higher. The shares of Halkbank, as the lender is known, dropped 0.7 percent, extending its two-day slump to 13 percent, the most over such a period since August 2011. Emlak Konut ended the day unchanged at 2.32 liras, after slipping 6.9 percent intraday and 12 percent yesterday.

Fed Taper

“The last thing Turkey needs is heightened perceived levels of political risks, which might force borrowing costs higher and the lira weaker,” Timothy Ash, a London-based strategist at Standard Bank Group Ltd., said in e-mailed comments. “The concern might be that further investigations will follow, roping in ever more officials and again serving as a major distraction for the policy elite.”

The Fed will probably begin cutting its $85 billion of monthly bond purchases this week, according to 34 percent of economists in a Dec. 6 Bloomberg survey, up from 17 percent in a Nov. 8 poll.

“The political uncertainty we now see in Turkey is real and significant,” Haluk Akdogan, head of Turkish equities at Wood & Co. in London, said in an e-mailed report. “We expect the market to remain weak well into next year.”

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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