Turkish Yields Drop as Output Spurs Rate Cut Bets; Lira Advances

Turkish bond yields fell to the lowest in almost a week as the slowest industrial production growth this year spurred bets the central bank will cut interest rates further.

Two-year yields dropped to within seven basis points of a record low as output climbed 1.4 percent from a year earlier, lagging the 3.3 percent median estimate of three analysts in a Bloomberg survey. Industrial production fell 0.9 percent in March from the previous month after adjusting for work days and seasonality, the statistics agency said today.

“The perception that the central bank will maintain its interest-rate cuts will strengthen after the less-than-expected data,” Tufan Comert, a strategist at Garanti Securities in Istanbul, wrote in an e-mailed note.

Yields on two-year benchmark notes declined three basis points to 5.09 percent at the 5 p.m. close in Istanbul, approaching the 5.02 percent low on May 2 and extending this year’s drop to 109 basis points. The lira advanced 0.4 percent to 1.7889 per dollar at 6:28 p.m. in Istanbul, the strongest level since April 17, and curbing a decline in 2013 to 0.3 percent.

Turkey’s central bank cut its one-week repo rate by 50 basis points to a record 5 percent on April 16 and also lowered the overnight interest rates. The Monetary Policy Committee is scheduled to meet on May 16.

Banks Rally

Turkish banks led the benchmark stock index to a record high as investors speculated Standard & Poor’s will raise the nation to investment grade and as Kurdish militants started withdrawing from the country. S&P said in an e-mailed statement today its announcement about a meeting in Turkey on June 4 was no indicator of possible future rating action. Turkey is rated BB+ at S&P, one level below investment grade.

Turkey’s currency is the least volatile on a three-month basis among 10 emerging market nations at 5 percent, according to data compiled by Bloomberg. The lira may weaken to 1.84 per dollar by the end of the year, according to currency forwards.

Before it's here, it's on the Bloomberg Terminal.