Turkey’s lira gained for the first time in three days and bond yields rose after the central bank offered zero funding at its one-week repo auction for a second time in little over a week, tightening funding for lenders.
Yields on benchmark notes climbed after the bank refrained from lending at its policy rate, embarking on what it calls additional tightening to support the currency. It offered no funding at the repo auction on June 11 and sold $250 million in its first currency auction this year as anti-government protests sent the lira to its weakest level since 2011. The exchange rate is still 2.2 percent weaker against the dollar in the past month and the lira traded at 2.2014 against its euro-dollar basket.
“I believe 2.20 basket level is the place the central bank feels uncomfortable and this triggers the lira tightening,” Bugra Bilgi, an Istanbul-based hedge fund manager at Garanti Asset Management, wrote in an e-mailed note today.
Yields on two-year notes jumped 10 basis points, or 0.10 percentage point, to 6.91 percent at 12:34 p.m. in Istanbul. The lira strengthened 0.2 percent to 1.8820 in its first gain in three days, erasing a decline of less than 0.1 percent. Stocks rose for the first time in three days, with Borsa Istanbul National 100 index climbing 1.2 percent.
The yields surged 57 basis points yesterday after Prime Minister Recep Tayyip Erdogan accused the main opposition party of inciting weeks of protests and vowed to strengthen police in “every way” to fight a “conspiracy” by traitors and foreign agitators. He blamed “certain capital groups, the interest rate lobby and certain organizations inside and outside” Turkey for organizing protests, in his address to the Justice and Development Party at Parliament in Ankara yesterday.
The cost to protect against a default on Turkish debt rose five basis points to 159, according to data compiled by Bloomberg. That compares with 166 basis points for Brazil’s credit default swaps.
Emerging-market stocks fell for a second day before Federal Reserve’s policy announcement today, waiting for a signal from U.S. policy makers about when they will begin to slow their monthly bond purchases.
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