Fallen `Drone' Takes Turkish Lira Down as Syria Tension Rises

Updated on
  • Currency pares weekly gain, limiting rebound spurred by Fed
  • State-run agency releases pictures of damaged, unmanned drone

Turkey’s currency fell with stocks and bonds after the military shot down an aircraft on the border with Syria, intensifying the security risk in a nation where a hung parliament and ethnic strife are keeping investors on the edge.

While officials didn’t identify the type or nationality of the aircraft, the state-run news agency released images of a damaged unmanned drone. The U.S. suspects it was sent by Russia, Reuters reported, citing an unidentified American official. The lira pared its third weekly rally, the Borsa Istanbul 100 Index of stocks fell for a second day and 10-year government bonds dropped for the first time in three days.

“That was a particularly worrying piece of news, as Turkey is a NATO member,” said Viktor Szabo, who helps oversee $12 billion of developing-nation debt at Aberdeen Asset Management Plc in London. “No one wants to see a NATO-Russia conflict. Markets are fragile, the political uncertainty is high.”

The shooting incident comes amid an escalation of conflict in the region as Russia joined the Syrian war in support of Bashar al-Assad’s regime and pounded Islamic State positions with 32 airstrikes. The U.S. and the U.K. have also carried out drone attacks in the area. While Turkey wants Assad deposed, it also warned Americans and Russians against arming rebels who might allow those munitions to be used against it.

U.S. President Barack Obama spoke to his Turkish counterpart, Recep Tayyip Erdogan, to discuss cooperation in the fight against Islamic State militants, according to the White House. Obama reiterated his condemnation of explosions in Ankara on Oct. 10 that killed at least 95 people.

Recent Rebound

The lira fell as much as 1.1 percent to 2.9106 against dollar, its biggest drop since Sept. 4, before trading 0.7 percent lower at 2.8984 at 5:41 p.m. in Istanbul. The currency is heading for a gain of 0.4 percent this week. The benchmark stocks gauge slid 1 percent. The yield on 10-year bonds increased five basis points to 10.16 percent.

Friday’s drop in the lira trimmed a rebound fueled by investors’ expectation the Federal Reserve will delay an interest-rate increase until March. The currency is up 5.5 percent since Sept. 28.  

“The lira sold off immediately following the news from the army,” said Alp Serbetli, a foreign-exchange trader at Anadolubank AS. “It is important to identify the country. This development may intensify security risk associated with Turkey, unless it is just a drone.”

Turkey has called early elections on Nov. 1 after polls on June 7 yielded inconclusive results and subsequent efforts to form a coalition government failed.