Turkey Yields Jump Most in 2 Weeks, Lira Drops on Erdogan Speech

Turkey’s bond yields rose the most in two weeks and the lira and stocks reversed gains as Prime Minister Recep Tayyip Erdogan accused opposition lawmakers of inciting protests and vowed to strengthen the police response.

Two-year benchmark yields surged after Erdogan blamed “certain capital groups, the interest rate lobby and certain organizations inside and outside” the country for organizing protests, in his address to the Justice and Development Party at Parliament in Ankara today. The central bank left its three main interest rates unchanged today, citing a recovery in domestic demand. Investors awaited signs from the U.S. Federal Reserve about when it may start to reduce stimulus, as that would cut investors’ appetite for riskier assets.

“The yields were already up before the rates decision as political tension lingers,” Pinar Uslu, a private banking strategist at ING Bank in Istanbul, said in e-mailed comments.

Two-year yields climbed 57 basis points, the most on a closing basis since June 3, to 6.81 percent at 4:31 p.m. in Istanbul. Ten-year yields increased 24 basis points to 7.50 percent, rising for a second day.

The Fed starts a two-day policy meeting today, about a month after Chairman Ben S. Bernanke said quantitative easing could be scaled back if the U.S. employment outlook showed sustainable improvement.

The markets are “in essence, waiting for what Bernanke will say,” ING’s Uslu said. “Any statement from the Fed that would result in higher U.S. yields would also have a similar effect on our markets, especially 10-year yields.”

Lira Weakens

The lira weakened 0.5 percent to 1.8834 per dollar, extending its loss this year to 5.3 percent, the second-biggest depreciation among European, Middle Eastern and African currencies monitored by Bloomberg. The Borsa Istanbul National 100 index fell 0.9 percent, sliding for a second day, after gaining 1.1 percent in earlier trading.

“The lira has depreciated with the market reacting negatively to Erdogan’s comments,” Uslu said.

The central bank kept the benchmark one-week repo rate at 4.5 percent at its policy meeting today, while maintaining the overnight lending and borrowing rates at 6.5 percent and 3.5 percent, respectively. The move is in line with the median estimate of all economists in a Bloomberg survey.

Erdogan accused the main opposition party of inciting weeks of protests and vowed to strengthen police in “every way” to fight a “conspiracy” by traitors and foreign agitators.

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