Bloomberg News

Turkey Yields Decline to Two-Week Low on Reduced Inflation Bets

May 22, 2012

Turkey bond yields fell to the lowest in two weeks as the central bank’s tighter policy backed investor expectations inflation will fall in May.

The yield on benchmark two-year debt declined five basis points, or 0.05 percentage point, to 9.46 percent by the close in Istanbul, the lowest since May 10. The lira depreciated less than 0.1 percent to 1.8254 per dollar, paring its gain this year to 3.6 percent, the third-best performance among emerging-market currencies after the Colombian peso and the Hungarian forint.

Inflation is expected to slow to about 8 percent in May before accelerating again, Central Bank Governor Erdem Basci said May 18. The rate of price increase in April at 11.1 percent is the highest in 3 1/2 years. Turkey’s central bank today withheld one-week lending at its lowest annual funding rate of 5.75 percent for a second day, lending 2 billion liras ($1.1 billion) in a one-week repurchase agreement at 10.8 percent. The amount it can lend in five-day repo auctions varies from 1 billion liras to 6 billion liras. The last time it lent 5 billion liras at the minimum policy rate was May 2.

“It is possible that the central bank wants to eliminate upside risks on inflation by continuing with exceptional days despite the improved risk perceptions in the global markets,” Ali Cakiroglu, a strategist at HSBC Private Bank, in Istanbul said in an e-mailed note.

Turkey’s central bank varies its funding rate daily, keeping borrowing costs within a 5.75 percent to 11.5 percent interest-rate corridor introduced last year. The days it refrains from lending at the lowest rate are termed “exceptional days.”

Bondholders expect annual inflation of 7.3 percent, based on the so-called breakeven rate, or the extra yield on fixed- rate lira-denominated bonds due October 2013 over securities paying returns tied to consumer prices. The rate, which is an indicator of future inflation, fell from 7.6 percent on May 8, the highest level since Jan. 13, data compiled by Bloomberg show.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

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