Bloomberg News

Turkey Yields Fall on Optimism Over Borrowing, European Auctions

January 12, 2012

Jan. 12 (Bloomberg) -- Turkish yields plunged as successful bond auctions in Spain, Italy and Hungary eased concern among investors about the cost to the Turkish Treasury of repaying 17.8 billion liras ($9.6 billion) of debt this month, the biggest amount in a year.

Yields on two-year debt tracked by Turk Ekonomi Bankasi AS fell 23 basis points, or 0.23 percentage points, to 11.00 percent at 4:40 p.m. in Istanbul, the biggest drop since Nov. 30. The lira gained 0.4 percent to 1.8486 per dollar, heading for its lowest in more than a month.

European stocks rose and the euro strengthened as Spain sold almost double the amount planned and Italy’s borrowing costs fell at debt sales today. Spain sold 9.98 billion euros ($12.7 billion) of notes, compared with a target of as much as 5 billion euros, while the yield on Italy’s one-year bills fell to 2.735 percent. Hungary sold 44 billion forint ($181 million) of debt, 11 billion forint more than targeted.

“The central bank has decreased the average funding cost by 300 basis points in three days and the lira is holding well,” Erkin Isik, fixed income strategist at Turk Ekonomi Bankasi, said in response to e-mailed questions. “This shows that there is interest in bonds and the much-feared auction calendar that will start next week will be less of a problem.”

The central bank is reducing banks’ borrowing costs, funding them with 6 billion liras at the lowest rate of 5.75 percent for a third day today. The bank had lent at rates of between 10.6 percent and 12.5 percent since Dec. 29, pushing up bond yields and squeezing liquidity, as it sought to support the lira and tame inflation.

“Risk appetite towards emerging-market currencies has gained significantly on the back of the better-than-expected Spanish bond auction,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments.

The Treasury will offer March 2013 bonds and January 2018 floating rate notes on Jan. 17, repaying 4 billion liras of debt to investors the next day. It will hold a total of six auctions this month to borrow 14.4 billion liras in domestic debt, according to a borrowing program published on Dec. 30. The central bank sold $50 million for liras today, adding to its sales of at least $15 billion since August to support the lira, which fell 18 percent in the biggest depreciation among all emerging markets last year.

“We see foreign investors are buying Turkish bonds and this started at the beginning of the week at longer maturity bonds and this has spread to other bonds today,” Tufan Comert, a strategist at Garanti Securities in Istanbul, said in e-mailed comments. The bond purchases are helping the lira appreciate, he said, adding that it may appreciate to 1.83 per dollar today.

The lira advanced 2.3 percent this year, leading all emerging market currencies in Europe, the Middle East and Africa, data compiled by Bloomberg showed.

--Editor: Steve Bryant

To contact the reporters on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net; 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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