Turkish Yields Rise as Bank Cuts Repo Funding for Lenders

Turkish benchmark bond yields advanced for a second day as the central bank reduced the liquidity it provides in one-week repurchase-agreement or repo auctions, and new government debt sales put selling pressure on bonds.

The yield on two-year benchmark bonds jumped as much as five basis points and closed three basis points higher at 6.38 percent at 5 p.m. close in Istanbul. The lira climbed 0.1 percent against the dollar to 1.8078.

The central bank provided 2.5 billion liras ($1.4 billion) in its one-week repo auction today, compared with 10.6 billion liras of total bids from lenders. The Ankara-based bank gave 5 billion liras at its 5.5 percent benchmark interest rate and also 6.25 billion liras at 7 percent on March 29, in its first overnight repo funding to primary banks since August. The cost of borrowing in the interbank market climbed to its highest since September at 6.50 percent on March 29 before falling to 5.98 percent today.

“Yields are moving in tandem with the central bank policy,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS, said in e-mailed comments today. “The central bank gave only the sufficient amount of liquidity and interbank rates stayed at 6 percent.”

Turkey’s Treasury sold a total of 2.72 billion liras of seven-year floating rate notes at 3.44 percent in an auction today, up from 3.4 percent in the previous sale on March 18. The Treasury will sell 14-month zero-coupon bonds and 10-year fixed-coupon bonds tomorrow as it seeks to raise 14 billion liras from the domestic market this month.

“It is possible that the Treasury auctions exerted pressure on the yields,” Ali Cakiroglu, a strategist at HSBC Asset Management in Istanbul, said in e-mailed comments. “Demand in today’s FRN sale was not bad but we have a 10-year bonds sale tomorrow and we can’t see aggressive positions before this auction.”

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