Bloomberg News

Turkish Yields Hit 5-Week Low on Auction Bets, JPMorgan Upgrade

January 24, 2012

Jan. 24 (Bloomberg) -- Turkish two-year bond yields retreated to the lowest in more than five weeks on bets the Treasury will meet its borrowing target in an auction today as JPMorgan Chase & Co. upgraded local bonds.

The yield on two-year notes fell for a second day, declining seven basis points, or 0.07 percentage point, to 10.23 percent at 10:54 a.m. in Istanbul, a Turk Ekonomi Bankasi AS index of the securities showed. That extended this year’s fall to 78 basis points, the biggest monthly drop in five months.

The Treasury is selling two-year benchmark debt maturing Dec. 4, 2013 and 10-year fixed-coupon bonds in auctions today. Turkey’s local bonds were raised to “neutral” from “underweight” at JPMorgan, which cited a “favorable” domestic and global backdrop in an e- mailed report today. The Treasury sold a total of 5.74 billion liras ($3.2 billion) of fixed-coupon bonds maturing Jan. 27, 2016 and July 21, 2021 bonds linked to consumer price inflation yesterday.

The Treasury needs to borrow 3.1 billion liras in today’s auctions to meet its borrowing targets after yesterday’s sales, Fatih Keresteci, a strategist at HSBC Bank As in Istanbul, said in a client note.

“We see a strong chance that the drop in bond yields in the secondary market will continue for a while because of this relatively low figure,” Keresteci said.

Yields on Turkey’s benchmark debt soared 390 basis points last year, the most since 2006, as the lira lost 18 percent against the dollar in the biggest decline worldwide and a widening current-account deficit hurt investor confidence in the nation’s financial stability.

Interest Rate

The central bank will hold the benchmark rate at 5.75 percent, according to all 11 economists surveyed by Bloomberg. The bank will announce its decision at 2 p.m. in Ankara today.

Since October, Governor Erdem Basci has varied lenders’ borrowing costs on a daily basis from 5.75 to a ceiling of 12.5 percent. Mostly he has kept the rate at the top of that range, saying tighter policy is needed to stem a decline in the lira that helped drive inflation to 10.5 percent last year, almost double the bank’s 5.5 percent target.

Lira securities are rallying after the central bank more than tripled the minimum lenders can borrow through one-week repurchase auctions to 25 billion liras until Feb. 2, up from a minimum 7 billion liras for the past two weeks. The currency dropped 0.3 percent to 1.8241 per dollar today, paring this year’s gains to 3.7 percent.

--Editors: Peter Branton, Ash Kumar

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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