Turkish assets recover, bond yields at 7-mth low

ISTANBUL: Turkey's lira firmed on Wednesday, aided by gains in the euro against the dollar and a tentative recovery in global share markets, while bonds found some support on the possibility of future interest rate cuts, dealers said.

The lira closed at 1.7650 versus the dollar on the interbank market after opening at 1.7750 in early trade. The currency stood at 1.7805 at Tuesday's close.

"Local companies bought dollars during the day. After they left the market, the lira went below 1.7700. Today's foreign investors were sellers. The amount of forex selling auctions of the central bank also supports the lira's recovery," said Tolga Aktan, local markets specialist at Is Investment.

On Wednesday the Turkish central bank sold $100 million in a forex-selling auction with a minimum price of 1.7661 to the dollar where total bids amounted $234 million. The total amount sold by the bank since it launched forex selling auctions on Aug. 5 reached $690 million.

"However I don't expect a rally in the lira as well as in other emerging currencies due to continuing worries about global growth and European debt problems. Expectations for a policy rate cut also put pressure on the lira," Aktan added.

The lira has lost nearly 15 percent of its value versus the dollar since the end of 2010.

It has found recent support from daily central bank forex auctions that underscored comments from bank governor Erdem Basci suggesting the currency was 5 to 10 percent undervalued against the euro/dollar basket .

Bond yields declined on Wednesday, boosted by speculation over further central bank rate cuts.

The compound yield of the benchmark bond maturing on May 15, 2013 stood at 7.88 percent after touching 7.85 percent, its lowest level since the end of January. The benchmark yield closed at 7.96 percent for Wednesday-dated trade.

"Expectations that the central bank will continue to deliver rate cuts is supporting the downward trend of bond yields. In the medium-term, the (benchmark) yield can possibly see lower levels due to these policies," said a fixed-income trader.

The Turkish central bank governor Erdem Basci said last week the bank could cut rates again if downside risks threatened economic growth.

The main Istanbul share index closed on Wednesday 0.22 percent higher at 54,217.83 points, slightly underperforming the MSCI emerging markets index , which was up 0.51 percent.

Turkish equities had closed 1.14 percent higher on Tuesday.

Banks, the biggest component of the index and main draw for foreign investors, closed down 0.66 percent .

Turkey's Bank Asya , which offers non interest-bearing banking services adhering to Islamic law, said on Wednesday it has received expressions of interest from potential buyers but the offers were too low.

Its shares ended the day 1.62 percent higher at 1.88 lira.

Copyright Reuters, 2011