Turkey Yields Head for 5-Week High as Lira Spurs Tightening Bets

Turkey’s benchmark bond yields headed for their highest level in five weeks as a weaker currency fueled speculation the central bank will raise borrowing costs for the nation’s lenders.

Yields on two-year notes rose 19 basis points, or 0.19 percentage point, to 8.42 percent at 12:01 p.m. in Istanbul, the highest since Sept. 30 on a closing basis. The lira depreciated to its lowest level in a month yesterday and traded 0.2 percent stronger at 2.0323 per dollar today.

The central bank declared Nov. 11 and Nov. 12 as extra-tightening days during which it does not provide daily liquidity at its lowest funding rate of 4.5 percent, implying a hawkish monetary stance. The move will increase the average funding rate to 6.50 percent if it is repeated every week in November, Erkin Isik, a strategist at Turk Ekonomi Bankasi AS in Istanbul, wrote in e-mailed comments. Normally, the bank refrains from lending at the minimum rate to just once a week.

“The risk of further tightening from the central bank is priced,” Isik wrote. “The short-term bond yields and exchange rates are moving very much in tandem.”

The 30-day moving average for the commercial banks’ cost of funding is 6.30 percent, according to data compiled by Bloomberg.

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