Turkish bond yields at record low, shares dip

Fri Nov 9, 2012 12:05pm EST

Related Topics

* Bond yields dip, lira eases

* Shares down driven by banking shares

* C.bank says may cut borrowing rate

By Seltem Iyigun

ISTANBUL, Nov 9 (Reuters) - Turkish bond yields fell to their lowest ever level on Friday after the central bank hinted it could cut its borrowing rate if the lira firms excessively after Fitch's granting to Turkey of an investment grade credit rating.

Shares dipped led by banking stocks, as investors sold for profit with the close to record high levels since Monday's Fitch upgrade, analysts said.

Central Bank Governor Erdem Basci signalled on Friday that the bank may adjust its overnight borrowing rate, the lower end of its interest rate corridor, or the policy rate, the one-week repo rate, if the lira strengthens excessively.

Since markets started pricing in a credit rating upgrade by Fitch in early October, the lira has firmed around 2 percent against the dollar and 3 percent against its euro-dollar basket. It hit its strongest since May at 1.7693 to the dollar on Wednesday.

Following Basci's comments, the two-year benchmark bond yield dropped to 6.56 percent, an all-time low. It closed at 6.57 percent, down from Thursday's close of 6.74 percent.

"The bond yields fell on the central bank's comments," Tufan Comert, strategist at Garanti Securities, wrote in a note. "Other factors such as easier policy from the central bank and lower borrowing needs of the treasury also contributed to the fall."

A lower borrowing rate would lower the cost of funding for banks from the central bank, allowing them to dedicate more resources to buying bonds.

The Treasury said early in November it planned to borrow 13 billion lira ($7.24 billion) from domestic markets in November, down from a previously planned 16 billion.

"Expectations for inflation to level off between 6.5-7.5 percent in the period ahead and rising capital inflows after the Fitch rating hike into the bond market also supported the bonds," Comert said.

Istanbul's main share index closed down 1.14 percent at 71,820 points, underperforming a 0.41 percent fall in the global emerging markets index.

Banks fell 2.08 percent.

Shares in lender Vakifbank fell 3.21 percent to 4.22 lira, as the sell-off overweighed its higher-than-expected third quarter net profits of 305 million lira.

Shares in Turkish Airlines closed 3.67 percent down at 4.20 lira after media reports said work on its privatisation would be completed by the year-end. An official at the Turkish Privatisation Board, however, denied the reports.

By 1614 GMT, the lira eased to 1.7896 to the dollar , from 1.7859 late on Thursday. Against the euro-dollar basket, it weakened to 2.0325, from 2.0268. (Writing by Seltem Iyigun)

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