Bloomberg News

Turkey Bonds Rally on Rating Upgrade Expectation After Tax Steps

October 13, 2011

Oct. 13 (Bloomberg) -- Turkish bonds gained for a second day, driving yields to the lowest in three weeks, on bets the country’s credit rating will be upgraded after the government raised tax rates for cars and other goods.

Yields on two-year benchmark bonds fell two basis points, or 0.02 percentage point, to 8.31 percent at 1:48 p.m. in Istanbul, according to the RBS Istanbul Benchmark Bond Index, poised to close at the lowest level since Sept. 21. The lira weakened 0.7 percent to 1.8331 per dollar.

The government raised special consumption taxes on cars and other goods amid efforts to narrow the current-account deficit. The tax increase would raise 5.5 billion liras ($3 billion) in revenue, Finance Minister Mehmet Simsek said at a news conference in Ankara today. Deputy Prime Minister Ali Babacan said the budget deficit will narrow to 1.5 percent of gross domestic product in 2012 from 1.7 percent this year, even as growth slows to 4 percent from 7.5 percent.

Yields are falling because of “expectations of a rating upgrade after the announcement of the medium-term economic plan and concrete policy measures,” Fatih Keresteci, a strategist at HSBC Holdings Plc in Istanbul, said in an e-mailed response to questions. “I don’t expect an upgrade because there is no noticeable improvement in the current account deficit.”

The current-account deficit makes Turkey dependent on external financing and is the main obstacle to the assignment of an investment-grade rating to the country’s debt, Standard & Poor’s said Sept. 20.

The deficit will peak at 9.4 percent of GDP this year and decline to 8 percent next year, falling to 7.5 percent in 2013 and 7 percent by 2014, Babacan told reporters in Ankara today as he announced an updated medium-term economic plan.

--Editors: Linda Shen, Ana Monteiro

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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