Lira Jumps to Highest in 8 Months on Growing Upgrade Speculation

The lira climbed to its strongest level in more than eight months and bond yields dropped as traders said speculation was building that Turkey will receive a second investment-grade rating.

The lira gained 0.4 percent to 1.7579 per dollar at 1:32 p.m. in Istanbul, the highest since May 4, bringing its appreciation this year to 1.5 percent, the second-biggest advance among 31 major currencies behind the Mexican peso, according to data compiled by Bloomberg. Yields on benchmark two-year notes fell four basis points to 5.96 percent, the lowest since Dec. 19.

Fitch Ratings upgraded Turkey’s credit rating to BBB- on Nov. 5, its lowest investment grade, spurring a rally in the nation’s assets last year. A second upgrade would push Turkey into investment-grade indexes tracked by fund managers, boosting the market of buyers for its debt. Moody’s rates Turkey at Ba1, one level below investment grade. Standard & Poor’s rates the country two levels below that threshold.

“Rumors are making the rounds that a Moody’s upgrade is close,” Emre Balkeser, head of trading at Garanti Securities in Istanbul, said by telephone today. “There is no other reason that can explain the rise.”

Moody’s did not immediately respond to a request for comment made by phone to the company’s offices in London today.

The lira’s gain this year builds on last year’s 6 percent increase. The currency was the world’s worst performer in 2011, dropping 18 percent as concern mounted over the country’s current-account deficit, then the world’s second-biggest behind the U.S. Fitch cited a reduction in the deficit for its upgrade in November last year. While declining to match the upgrade that same month, Moody’s said Turkey was the only country in Europe it rated with a positive outlook.

“There are strong expectations in the market that Moody’s will upgrade Turkey soon and this is causing today’s move,” Bulent Topbas, a portfolio manager at Strateji Menkul Degerler AS in Istanbul, said by phone today.

The Treasury in Ankara signed a ratings agreement with Fitch and Moody’s, the state-run Anatolia news agency reported on Jan. 11. The agreement replaced the previous deal with Moody’s and Standard & Poor’s, which rates Turkey at the lowest among the three ratings companies at BB, two levels below investment grade.

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