Turkish Lira Falls Most in Month as Global Risk Appetite Wanes

Updated on
  • Cost of insuring nation's debt rises most in four months
  • Borsa Istanbul 100 Index declines most in almost two months

The Turkish lira headed for the biggest decline in more than a month and stocks and bonds fell amid speculation rate increases by the Federal Reserve may curtail investment into developing markets.

Turkey’s currency depreciated 1 percent to 2.9453 per dollar at 6:40 p.m. in Istanbul. The cost of insuring against a default on five-year debt advanced to 302.3 basis points, the most in more than four months, as the yield on Turkey’s 10-year notes rose 18 basis points to 10.81 percent.

“Turkey has been outperforming recently and now the doubt over the trajectory of rate increases in the U.S., on top of Turkish specific factors is triggering a selloff,” said Erkin Isik, a strategist at Turk Ekonomi Bankasi in Istanbul. “Investors are questioning bets the Federal Reserve will not be able to raise interest rates this year.”

Turkey is among the most vulnerable to shifts in global sentiment as it relies on foreign capital to finance the widest current-account deficit among the Group of 20 nations. Wagers the Fed will raise interest rates this year rose after a U.S. employment report on Friday showed wage growth exceeded estimates. Markets have also been sensitive to Turkish involvement in the Syrian civil war since the country shot down a Russian warplane on Nov. 24, triggering reprisal trade sanctions.

President Recep Tayyip Erdogan on Sunday signaled the country is prepared to join the war in Syria if needed.

The Borsa Istanbul 100 Index fell 3 percent, the most since Dec. 10. Turkiye Garanti Bankasi AS and Akbank TAS, the nation’s two largest lenders by market capitalization, were the biggest contributors to the drop, with declines of 4.7 percent and 3 percent respectively.