Bloomberg News

Turkey Bonds Decline as Tighter Central Bank Policy Continues

May 11, 2012

Turkish bonds fell, pushing the rise in yields so far in May to the strongest this year, after the central bank refrained from lending at its lowest policy rate for a sixth day, extending the duration of its tightening cycle.

The yield on two-year benchmark debt rose six basis points, or 0.06 percentage point, to 9.51 percent at the close in Istanbul, increasing the monthly jump to 19 basis points, the biggest leap this year.

The Turkish central bank varies its funding rate on a daily basis, maintaining borrowing costs within a 5.75 percent to 11.5 percent interest-rate corridor introduced last year. It has refrained from lending at its lowest policy rate to control inflation which at 11.1 percent is at its three-and-half year high. The bank last halted lending at the 5.75 percent rate between April 12 and 18 after the lira fell to a low of 1.8177 against the dollar.

“It is normal that short-term debt performs badly when the policy is so tight,” Sercan Kiliclar, a fixed-income strategist at Akbank TAS (AKBNK), said in e-mailed comments.

The lira weakened as much as 0.6 percent before paring its loss to 0.1 percent at 1.7867 per dollar by 4:58 p.m. in Istanbul. The currency has depreciated 1.6 percent against the dollar this week, paring this year’s rise to 5.9 percent.

Emre Balkeser, head of trading at Garanti Securities in Istanbul: “The risk perception has reversed after JPMorgan loss report and a part of the cash that entered yesterday is leaving. The money flows are very short term and it may cause such fluctuations.”

JPMorgan Chase & Co. said it lost about $2 billion tied to synthetic credit securities after positions taken by its chief investment office were riskier than expected.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for May rose to 77.8 from 76.4 the prior month. The U.S. gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.

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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