Turkey Yields Jump to 3-Year High on Core Inflation; Lira Drops

Turkey’s debt yields touched the highest level in more than three years as core inflation accelerated in August. The lira slid as an Israeli missile test raised concern the conflict in the Middle East is escalating.

Yields on 10-year bonds surged as much as 29 basis points to 10.33 percent, the highest level since June 2010, and traded up 20 basis points to 10.24 percent at the close. The lira depreciated 2 percent to 2.0612 per dollar by 6:02 p.m. in Istanbul, weakening to a record low.

Consumer-price gains ebbed to 8.17 percent last month from 8.88 percent in July, the highest level in almost a year, according to data from the statistics office in Ankara today. Core inflation accelerated to 6.37 percent from 6.09 percent in the previous month. Israel tested its missile-defense systems, Yaacov Havakook, head of the Defense Ministry’s international media department, said by phone.

“Core inflation looks bad and this spurred selling in long-term maturities,” Bugra Bilgi, a hedge fund manager at Garanti Asset Management in Istanbul, wrote in e-mailed comments. “The central bank said it would announce a plan and there were people who were buying liras for that reason but there has been no announcement,” Bilgi said.

Brent crude futures jumped as much as 1.2 percent after RIA Novosti reported Russia detected the firing of two missiles in the Mediterranean. The dollar also gained against all but one of the 24 emerging-market currencies monitored by Bloomberg after the launch.

Missile Launch

Israel’s joint exercise with the U.S. came amid speculation the Federal Reserve will start tapering monthly bond purchases, trimming appetite for riskier assets.

“It looks that there will not be a relaxation in the currency market,” Onur Bayol, a trader at Denizbank AS in Istanbul, wrote in e-mailed comments. “The dollar is still strong in the international markets and Syria risks are continuing.”

Turkey’s central bank declared Sept. 9 an “extra tightening” day, when it provides no funding at its cheapest lending rate of 4.5 percent. It would sell a minimum $100 million for liras on that day. Last week, Governor Erdem Basci promised to “surprise” market with tools to defend the lira.

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