Turkey Bond Yields Fall Most in Five Weeks After S&P Upgrade

Turkish benchmark bond yields dropped the most in five weeks after Standard & Poor’s raised the country’s foreign currency rating to one level below investment grade.

Yields on two-year benchmark debt declined seven basis points, or 0.07 percentage point, the most since Feb. 19, to 6.34 percent at 5:02 p.m. in Istanbul. The yield -- up 19 basis points this quarter -- tumbled as much as eight basis points after the one-step upgrade to BB+.

The economy appears to be “slowly rebalancing, without undermining its relatively strong fiscal performance,” the rating company said yesterday. S&P left Turkey’s outlook at stable and said the higher rating also reflects the country’s progress toward ending its four-decade long fighting with Kurdish militants, which might lead to lower security-related costs and higher cross-border trade flows. Moody’s Investors Service also rates Turkey one level below investment grade.

“S&P’s move strengthens our view and we reiterate our expectation that Moody’s with its positive outlook will be the next upgrade during 2013,” Ata Invest head of research Cemal Demirtas and chief economist Gulay Elif Girgin said in an e-mailed note.

Turkey was upgraded to investment grade by Fitch Ratings in November. Economy Minister Zafer Caglayan said Turkey’s performance has long deserved investment grade and S&P and Moody’s are expected to upgrade the country “in the coming period.”

The lira advanced 0.1 percent to 1.8114 a dollar. The currency has retreated 1.5 percent this quarter, headed for its worst performance since the last quarter of 2011.

“With two agencies rating Turkey on the verge of investment grade now, arguably the chances of Turkey achieving the much-desired second investment-grade rating has increased,” Finansbank AS analysts Inan Demir and Deniz Cicek wrote in an e-mailed note.

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