Lira Falls to Two-Week Low as Turkey-Kurd Border Violence Flares

  • Bonds slide, sending 2-year yields to highest since Jan. 27
  • U.S. urges Turkey, Syrian Kurds to halt their shellings

Turkey’s lira fell to the weakest level in almost two weeks and bonds slid after the eruption of fighting on the border with Syria triggered concern security risks were escalating.

The currency depreciated 0.7 percent after Turkish artillery units shelled Syrian Kurdish forces suspected of trying to seize more territory along the border over the weekend. The U.S. urged both sides to halt their fire. Bonds fell, sending the two-year note yield 12 basis points higher, the most in nearly three weeks, to 11.20 percent.

The flareup in violence over the weekend threatened to further destabilize efforts to contain the Islamic State as Syrian government troops backed by Russia advance against rebels backed by Turkey and Saudi Arabia. Turkish assets have been rocked over the past four months after a deadly bombing in the nation’s capital Ankara in October, the downing of a Russian military jet a month later and a blast in Istanbul in December. 

“The headlines we got this morning on escalating tensions on the Turkey-Syria border are the main reason the lira is not participating in this general risk-on” rally, said Gautam Kalani, an emerging-markets strategist at Deutsche Bank AG in London.

The lira slid to 2.9506 against the dollar at 5:38 p.m. in Istanbul, the weakest on a closing basis since Feb. 2. A gauge of 20 developing-nation currencies advanced for a second day. The yield on Turkey’s 10-year bonds climbed 11 basis points to 10.81 percent.

Shared Enemy

Turkey returned fire over the weekend at four positions of the Syrian Kurdish Democratic Party, or PYD, in northwest Syria, Defense Minister Ismet Yilmaz told a parliamentary committee, including the Mannagh air base the Kurds captured last week. Turkey’s foreign ministry said forces on Monday responded to fire from within Syria on a border outpost in Hatay province.

Prime Minister Ahmet Davutoglu said in Ukraine on Monday that the PYD was trying to gain territory while seeking international legitimacy under the pretext of fighting Islamic State.

The Pentagon said Turkish and Syrian Kurdish forces share an enemy in Islamic State, and urged all parties to abide by agreements made in Munich this week to seek a cessation of hostilities in Syria.

Saudi Arabia moved fighter jets to a Turkish airbase and offered its special forces for a possible ground offensive in Syria by a U.S.-led coalition battling Islamic State. The offer comes as Syrian government troops threatened to drive rebels out of Aleppo with the help of Russian airstrikes.

The Borsa Istanbul 100 Index was little changed after falling as much as 2.1 percent and rising 0.9 percent. Global equities climbed on speculation authorities from Europe to Japan will increase stimulus to stabilize economic growth. Shares on Turkey’s main index traded at about 7.9 times expected 12-month earnings, near the cheapest in four years, according to data compiled by Bloomberg. 

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