Turkey dollar bond trading surges before central bank meeting

LONDON (Reuters) - Trading volumes of dollar-denominated Turkish sovereign bonds have surged to their highest in almost two years as hopes of a shift to monetary orthodoxy stirred investor interest before a central bank meeting on Thursday.

Average daily trading volumes for November reached $489.75 million, the highest since at least the start of 2019, showed MarketAxess data.

The spike in trading comes amid a recent rally in Turkish assets, including the lira and Eurobonds, after the departure of the central bank governor and the finance minister and before Thursday’s central bank meeting. The new governor, Naci Agbal, is expected to raise the bank’s policy rate to 15% from 10.25%, according to a Reuters poll.

That rally appeared to lose steam on Tuesday. The lira weakened more than 1% and dollar bonds lost as much as 1.6 cents, the biggest daily drop in nearly a month for the 2045 and 2041 issues US900123CG37=TEUS900123BJ84=TE.

Investors have been confounded by Turkey’s unorthodox approach to central bank policy in recent years, but hopes of a more conventional stance were further raised when President Tayyip Erdogan last week pledged to embark on a new economic strategy built on price, monetary and financial stability.

That pledge prompted banks, including Citi and Societe Generale, to turn positive on the lira.

“Many market participants are viewing the recent changes of leadership of the Ministry of Finance and CBRT (central bank) as positive but we are yet to see whether this is a broader strategy to return to more conventional and transparent macroeconomic policies over the medium term as opposed to just a short-term change,” said Tatiana Lysenko, global emerging markets economist at S&P Global Ratings. “But we would agree that there are already some positive signs.”

S&P expected the central bank to raise rates by around 400 basis points on Thursday, she said.

“Markets want something more transparent, more clear signal that we’re raising our key rate, that’s our main instrument,” Lysenko said.

Reporting by Tom Arnold, editing by Larry King