Turkey Yields Drop Most in 3 Weeks as U.S. Tapering Fears Fade

Turkish bond yields fell the most in three weeks as the U.S. Federal Reserve pledged to keep buying $85 billion in bonds every month, boosting demand for riskier assets.

Yields on the two-year benchmark bonds tumbled 29 basis points to 8.94 percent as of 3:50 p.m. in Istanbul, the biggest retreat since July 12 on a closing basis. The yield surged 134 basis points in July, the third monthly gain, as the Fed signaled it may reduce bond buying that fueled gains in emerging assets and after anti-government protests. The lira weakened 0.1 percent to 1.9365 per dollar today.

The U.S. central bank said yesterday persistently low inflation may hamper economic expansion. Chairman Ben S. Bernanke, who has said any reduction in stimulus would depend on the economy’s performance, didn’t indicate the timing for a cut to bond purchases after the two-day policy meeting in Washington. Foreign investors sold $586 million of Turkish bonds in the week ended July 26, raising total outflows to $2.9 billion since May 31, according to central bank data.

“The Fed’s dovish talk on inflation has spurred expectations that bond buying in the U.S. will not end soon and this spurred buying,” Bugra Bilgi, a hedge-fund manager at Garanti Asset Management in Istanbul, said by e-mail today.

The Turkish currency declined in each of the past three months against the dollar, dropping 0.3 percent in July in the second-biggest depreciation among emerging markets in Europe, Africa and the Middle East, according to data compiled by Bloomberg. Three-month volatility against the dollar rose to 9.57 percent today, the highest level since March 2012, the data show.

“Today’s data showed foreigners sold $4.4 billion of bonds since mid-May,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS, said in e-mailed comments. The “low level of positioning, the level that the yields have reached and Fed’s dovish messages are spurring bond purchases,” he said.

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