Turkey bond yields fell, extending the drop this week to the most among emerging-market peers, after the central bank lent at its lowest funding rate for the 14th day, signaling it is comfortable with inflation.
Two-year benchmark debt yields declined 1 basis points, 0.11 percentage point, to 8.83 percent at 3:01 p.m. in Istanbul. The drop in yields this week widened to 28 basis points, the biggest slide among 14 emerging-market similar maturity bonds tracked by Bloomberg. Yields are headed for a fourth week of declines, the longest streak on a closing basis since Feb. 3.
The central bank lent 5 billion liras in its one-week repo auction at the lowest 5.75 percent rate today. The widest stretch of liquidity injection at this minimum policy rate since March has sent the weighted average cost of central bank funding down to 9.27 percent this month, compared with 9.74 percent in May. The bank kept both ends of its interest corridor - the upper end being 11.5 percent - unchanged at its monetary policy committee meeting yesterday.
“The Central Bank of Turkey replaced the sentence that current tight monetary stance will be maintained with cautious stance on pricing behavior, softening the tone of the tight monetary policy,” Asli Savranoglu, an economist at EFG Istanbul Equities, said in a report yesterday. “The bank now envisages more favorable inflation outlook than provided in the last inflation Report in April, driven by lower global oil and unprocessed food prices.”
The central bank may drive the effective cost of funding down toward 8.5 percent, Istanbul-based brokerage BGC Partners said in an e-mailed report to clients today. Investors increased bets that Basci will find ways to continue to lower rates, with the cost of a two-year interest rate swap falling 13 basis points today to 9.32 percent, the lowest since March 13.
Inflation slowed to 8.3 percent in May from 11.1 percent in April, the highest level in more than three years. Turkey announced May 31 its trade deficit for April narrowed more than expected, contracting for a sixth month and beating analyst estimates. Its current-account deficit retreated in April for a sixth month, the central bank said June 11.
Moody’s Investors Service increased Turkey’s credit rating to one level below investment grade on June 20. The upgrade to Ba1 had “two main drivers: the significant improvement that we’ve observed in Turkey’s public finances and our observation that the government has improved its shock absorption capacity,” Moody’s analyst Sarah Carlson said in a telephone interview from London after the ratings action.
The lira was little changed at 1.8077 per dollar. Ten-year lira bonds rose one basis point to 8.73 percent, after falling to the lowest since January 2011 yesterday.
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