Turkey’s 10-year bond yields headed for their highest level in almost three months on concern inflation will accelerate after the central bank cut interest rates yesterday for a second time this year.
Yields on the securities jumped as much as seven basis points, or 0.07 percentage point, to 7.03 percent, their highest level on a closing basis since Nov. 29 and increasing the spread with consumer price inflation-linked debt by 53 basis points this year. The yield pared its advance to 6.98 percent by 1:17 p.m. in Istanbul, increasing for a third day.
Foreign investors “are now more concentrated on linkers given the outlook on Turkish CPI, which makes it difficult for nominal bonds to perform in the long-end” Luis Costa, an emerging-markets strategist at Citigroup Inc. in London, said in e-mailed comments.
Turkey’s central bank reduced overnight borrowing and lending rates by 25 basis points yesterday to 4.5 percent and 8.5 percent, respectively. Consumer price inflation accelerated to 7.3 percent in January from 6.2 percent a month earlier, above the bank’s 5 percent target.
The lira weakened 0.2 percent to 1.7792 against the dollar, depreciating for a third day. Yields on two-year benchmark lira notes rose one basis point to 5.67 percent, climbing for the first time in three days.
Central Bank Governor Erdem Basci is looking to slow inflation to 5 percent this year, while he seeks to curb loan growth to 15 percent, according to the central bank. Lending jumped 19.1 percent in the 12 months to Feb. 8, according to data published by the banking regulator on Feb. 18.
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