ISTANBUL: Turkish bond yields fell 20 basis points to record lows on Monday after the central bank said it might cut rates if the lira firms further, while banking shares fell ahead of Halkbank's secondary public offering.
By 0911 GMT, the yield on Turkey's two-year benchmark bond had fallen to an all-time low of 6.36 percent. On Friday it closed at 6.56 percent.
The fall followed comments by central bank governor Erdem Basci saying the bank might apply a measured rate cut if the lira firms further.
Basci said the bank would react in the short term if the real exchange rate reached 120-125 on the bank's own index and would take strong policy action if it passed 130.
"As of end-October this (real exchange rate) index stands at 117.40. Consequently, we do not expect an aggressive reaction from the central bank," Ozgur Altug, chief economist at BGC Partners, wrote in a note.
"However, the governor keeps on commenting on this issue and could be aiming to prepare financial markets for a rate cut."
The lira has firmed around 2 percent against the dollar and 3 percent against its euro-dollar basket since early October, when markets began pricing in a credit rating upgrade by Fitch.
Fitch made the upgrade to investment grade on Nov. 5 and two days later the lira hit its strongest level since May at 1.7693 to the dollar.
The two-year bond yield has fallen around 70 basis points since the upgrade and on comments from the central bank last week that it could lower the overnight borrowing rate and the one-week repo rate if the lira appreciates excessively.
This would allow banks to buy more bonds as the cost of borrowing from the central bank would be lower.
"The hopes that banks' funding costs will be lower in the period ahead, as monetary policy would be easier, also provides support for the bonds," said Burak Maldar, vice president at Halk Invest.
The lira weakened after Basci's comments on Monday to 1.7991 to the dollar, from 1.7896 late on Friday. Against the euro-dollar basket, it eased to 2.0424, from 2.0325.
Istanbul's main share index was 0.07 percent down at 71,769 points, underperforming a 0.07 percent fall in the global emerging markets index. The fall was led by a sell-off in banking shares which dipped 0.84 percent.
On Friday, the Istanbul Stock Exchange said the privatisation of a 20.8 percent stake in Turkish lender Halkbank would take place on Nov. 20 and that trading on Halkbank shares would be suspended on Nov 12 until Nov 21.
"We may see a selling bias in the banking index as investors may continue to try raising funds for the secondary public offering (SPO) of Halkbank ahead of this week's book building. 71,500-72,800 current range with downside risk," wrote analysts at Ekspres Invest.
Comments
Comments are closed for this article.