Lira Drops With Turkish Bonds as Iraq Violence Drives Up Oil

Turkey’s lira headed for a seven-week low and bonds fell as climbing oil prices sparked by the Iraq conflict threatened to stunt government efforts to narrow the trade deficit.

The lira retreated 0.5 percent to 2.1215 per dollar at 5:28 p.m. in Istanbul, the weakest level since April 28 on a closing basis, and bringing this week’s depreciation to 2.1 percent. Yields on two-year notes increased eight basis points to 8.33 percent, capping the worst week since March.

Turkey, a net oil importer, has been struggling to narrow its current-account deficit, which at 7.5 percent of gross domestic product in March was the highest among 11 emerging markets in eastern Europe and Africa monitored by Bloomberg. Oil in New York headed for the biggest weekly advance this year after the U.S. said it won’t rule out using air strikes to help Iraq beat back militants who’ve seized cities in OPEC’s second-largest producer, triggering concern of a return to civil war.

Rising oil prices “can strain corrections in Turkey’s current-account deficit,” Cristian Maggio, an emerging-markets strategist at Toronto-Dominion Bank in London, said in e-mailed comments. The lira is also facing pressure as Turkish hostages are being held in Iraq, he said.

Militants from the Islamic State in Iraq and the Levant, or ISIL, took Turkish diplomats captive in Mosul this week after capturing the city. The hostages are still in captivity, Bulent Arinc, Turkey’s deputy prime minister, said today, adding he hoped they would leave for Turkey today.

The lira’s retreat this week was the biggest among 24 developing countries monitored by Bloomberg. The current-account gap declined by 41 percent in April from the year earlier to $4.79 billion, data showed this week.

West Texas Intermediate crude rose as much as 1.1 percent today, extending a 2 percent rally yesterday, which was the most in two months.

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