The lira appreciated to its strongest level this month after Prime Minister Recep Tayyip Erdogan met with protesters and the government said Istanbul’s Gezi Park won’t be redeveloped until the public is consulted.
The currency gained for the fourth day, strengthening 0.2 percent to 1.8569 per dollar at 12:34 p.m. in Istanbul, its highest since May 28. The official Anatolia News Agency said Erdogan met representatives of protesters who oppose the re-development of the public park and who have descended on Istanbul’s Taksim Square for the past two weeks.
“The relative easing of the tensions has calmed down the markets,” Onur Bayol, a fixed income and currency trader at Denizbank AS (DENIZ) in Istanbul, said in e-mailed comments.
Yields on two-year benchmark notes slumped 59 basis points, or 0.59 of a percentage point, to 6.15 percent, dropping for the third day. Today’s meeting was Erdogan’s first with the group since the protests escalated on May 31 and rapidly spread to other cities. After the talks, Cabinet spokesman Huseyin Celik said the government will “implement the decision that Istanbulites take,” referring to a pledge for public consultation, and won’t act before a court rules on the plan.
The Borsa Istanbul Stock Exchange National 100 Index jumped 2.7 percent to 78,541.53, the highest intraday level in a week.
Turkey’s central bank lent 4 billion liras at its one-week repo auction and another 500 million liras in a one-month repo sale today. Three days ago, it tightened liquidity by refraining from lending to banks to support the lira, the first such move in more than a year. On the same day, the bank pumped foreign exchange into the market for the first time in 2013 by selling $250 million after the lira sank to its weakest since December 2011.
“The gains are general in emerging markets, it’s not just the lira,” Gaelle Blanchard, a senior emerging markets strategist at Societe Generale SA (GLE) in London, said in e-mailed comments.
European stocks advanced for the first time in five days and the MSCI Emerging Markets Index rallied 1.2 percent before a report forecast to show U.S. industrial production expanded. The Indian rupee strengthened 0.8 percent against the dollar and the Russian ruble appreciated 0.5 percent.
Turkey’s two-year yield has climbed 154 basis points from a record 4.79 percent on May 17 as speculation grew that the U.S. Federal Reserve will taper its $85 billion in monthly bond purchases. Even after the increase, the yield has fallen 301 basis points in the past 12 months.
“The Fed is unlikely to favor brutal moves and high volatility and we will probably hear comments trying to calm down the market a bit,” Blanchard said.
Is Investment Securities, Turkey’s biggest brokerage, recommended buying 10-year lira bonds and Turkey’s 2041 dollar bonds, citing the calmer political situation.
“We expect positive mood to continue,” Ugur Kucuk, a fixed income strategist at Is Investment wrote in an e-mailed note. “Therefore, current interest rate levels provide attractive entry points for long positions in Turkish debt instruments.”
Yields on 10-year lira bonds dropped 35 basis points to 7.10 today in their biggest decrease since at least March 2010 on a closing basis, paring their advance this month to 26 basis points.
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