Akbank, Garanti Lead Drop in Turkish Stocks After Debt Sale

Turkish banks led losses on the Istanbul Stock Exchange today after the Treasury in Ankara sold debt at higher-than-expected yields in two auctions.

Turkiye Garanti Bankasi AS, the nation’s largest bank by market value, fell 1.7 percent, the most since March 13, at the close in Istanbul. Akbank TAS, the lender part-owned by Citigroup Inc., retreated 0.6 percent, while state-run Turkiye Halk Bankasi AS dropped 0.3 percent. The 16-member banking index declined 0.6 percent, the most since March 20.

The Treasury sold 945.5 million liras ($524 million) of June 2014 zero-coupon bonds at an average yield of 6.6 percent. That compares with 5.71 percent in a March 12 sale of same-maturity debt. The Treasury also sold 1.5 billion liras ($833 million) of 10-year fixed coupon bonds at an average yield of 7.27 percent today, compared with 7.23 percent in a March 19 sale of same-maturity debt.

“Banks have recorded windfall profits on bond positions until February,” Yavuz Uzay, director of Turkey research at Renaissance Capital in London, said in an e-mailed response to questions today. “Since then, some of those gains have been given back,” and “today’s selling that comes after the Treasury auctions makes sense in this respect.”

Bank stocks are also being sold after the central bank cut the upper limit of its interest rate corridor, increasing pressure on loan yields, while low interest rates limit deposit growth, Uzay said.

The central bank in Ankara cut the upper end of its interest rate corridor, the overnight lending rate, to 7.5 percent from 8.5 percent on March 26, while leaving the lower end, the overnight borrowing rate, unchanged at 4.5 percent. It also left the benchmark one-week repurchase rate unchanged at 5.5 percent.

Turkey’s banking stocks have gained 8.5 percent this year, compared with a 10 percent increase on the Istanbul bourse. Yields on two-year benchmark notes rose 66 basis points in March, the biggest increase among 16 emerging markets with two-year local currency debt tracked by Bloomberg.

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