ISTANBUL: Turkey's treasury borrowed 2.57 billion lira ($1.42 billion) through tapping a two-year fixed-coupon bond on Tuesday as the slowdown in the economy boosted expectations for an easier monetary policy outlook, attracting a high level of bids.
It borrowed 460 million lira from public institutions and 2.1 billion lira from the domestic market at the tap of its two-year benchmark bond maturing on Sept. 24, 2014, at a yield of 7.51 percent, below a forecast of 7.56 percent.
At the start of October, the treasury raised 1.62 billion lira through a lira-denominated sukuk, the government's second issue of an Islamic bond as it diversifies its sources of financing.
"The bids were very strong at the tap. The result is very positive. We can see it from the fall of the bond yields after the announcement of the tap's results," said Erkin Isik, a strategist at TEB.
Following the tap, the yield on the two-year benchmark bond fell to 7.45 percent, from 7.53 percent beforehand and a previous close at 7.55 percent.
Since the end of 2011, the yield on two-year benchmark bond has fallen around 400 basis points on lower inflation and a slower economy.
"The slowdown in the latest macroeconomic indicators underpinned prospects that the central bank will keep its rates low for longer than previously expected. This increases demand for short-term bonds," Isik said.
In response to low local demand, Turkey's central bank has been easing its policy stance since July by lowering the average lira funding rate from around 11 percent to 5.80 percent lately.
The bank will hold its monthly policy meeting on Oct. 18 and is expected to cut its overnight lending rate, for a second consecutive time, by at least 50 basis points.
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