Lira Heads for Six-Day Low as Fed Comments Cut Local Debt Appeal

The lira headed for the lowest level in six days on concern a slowing of new debt purchases by the U.S. Federal Reserve will cut investors’ appetite for emerging-market bonds, reducing demand for the local currency.

The lira depreciated 0.1 percent against the dollar to 1.7718, its lowest level on a closing basis since Jan. 9. Yields on two-year benchmark notes rose as much as 5 basis points, or 0.05 percentage point, and traded one basis point higher at 6.03 percent at 4:41 p.m. in Istanbul.

The Turkish currency appreciated 6 percent last year in the third-biggest gain in emerging Europe after the Polish zloty and the Hungarian forint as benchmark yields plunged 483 basis points. Chairman Ben S. Bernanke indicated yesterday he will closely scrutinize the potential costs of asset purchases aimed at spurring economic growth as the Fed’s balance sheet approaches $3 trillion. Foreign investors were net buyers of $16 billion in Turkish bonds last year.

“Foreigners are staying away from the Turkish market because of the Fed reports,” Sercan Kiliclar, a fixed-income trader at Akbank TAS, said in e-mailed comments. “The anxiety is caused by the possibility of Fed halting asset purchases.”

Two-year cross-currency swaps, used by foreign investors to hedge against currency risk, rose 5 basis points this week to 5.29 percent, the highest level since Nov. 14.

Benchmark notes erased earlier losses after the Treasury sold 895.7 million liras ($506 million) of 15-month bonds at 6.2 percent, auctioning this maturity for the first time.

The Treasury has completed this month’s sales, raising 12 billion liras of debt in five auctions versus its monthly domestic borrowing target of 11.6 billion liras. It plans to auction 34.6 billion liras of debt this quarter, up 89 percent from the last three months of 2012.

Even as U.S. policy makers were preparing to start new Treasury purchases, several members of the Federal Open Market Committee said it would “probably be appropriate to slow or stop buying well before the end of 2013,” minutes from the Fed’s Dec. 11-12 meeting showed on Jan. 3.

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