Turkey bonds recouped all of their losses incurred after Syria shot down a Turkish warplane four days ago and the lira strengthened as the government said it would prefer diplomacy to war, reducing risk aversion.
Yields on two-year benchmark debt fell 14 basis points, or 0.14 percentage point, to 8.78 percent, which is below the 8.80 percent recorded on June 22, the day Syria downed a F-4 Phantom jet. Yields have fallen 53 basis points in the second quarter, extending the decline from the previous three months.
Turkey will seek to resolve the issue using its legal rights under international law, Deputy Prime Minister Bulent Arinc said at a press conference yesterday following a cabinet meeting in Ankara. The government has invoked article four of the North Atlantic Treaty Organization treaty in calling for a meeting today of the defensive alliance, Arinc said. Gains in the lira and bonds accelerated after Prime Minister Recep Tayyip Erdogan told parliament today Turkey “won’t fall into trap of provocation.”
“It is important that the possibility of a conflict with Syria has lessened because this problem was the reason for the lira’s weakening on Friday afternoon and yesterday,” Emre Balkeser, head of trading at Garanti Securities in Istanbul, said in e-mailed comments. “The statements from the government point that they will take diplomatic steps,” Balkeser said.
Turkey summoned a meeting of its fellow NATO members in Brussels yesterday to discuss the shooting. NATO Secretary- General Anders Fogh Rasmussen said the Syrian action was “unacceptable” and the alliance will “follow the situation closely.”
The central bank lent 1 billion liras ($550.7 million) at the lowest 5.75 percent policy rate today in its one-week repurchase agreements auction. It provided liquidity at the minimum funding rate for a 16th consecutive day.
The lira strengthened 0.4 percent to 1.8149 per dollar, paring its depreciation this quarter to 1.8 percent, outperforming all the other emerging-market currencies in Europe, Africa and the Middle East.
Moody’s Investors Service upgraded Turkey’s credit rating to one level below investment grade June 20. The move 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 from London after the ratings action.
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