Jul 05 2018

Turkish 2-year bond yields climb to more than 20%

Turkish two-year debt weakened, with yields climbing to more than 20 percent, on concern over whether President Recep Tayyip Erdoğan’s new government will take the measures needed to rebalance the economy.

Yields rose to as much as 20.03 percent on Thursday, the highest level since 2008.

Erdoğan is due to announce his new economic team on Monday after he won presidential elections on June 24 with 52 percent of the vote. The elections herald the beginning of a new presidential system for Turkey, approved in a nationwide referendum in April last year held under the country’s state of emergency.

The lira weakened 0.1 percent to 4.67 per dollar at 11 a.m. in Istanbul. The currency has become less volatile as investors anticipate that the central bank will raise interest rates for the fourth time this year to tackle inflation. The bank belatedly hiked its benchmark rate by 425 basis points in May and June alone after the lira’s slump raised fears of a possible currency crisis.

Turkey’s inflation rate surged to 15.4 percent in June from 12.2 percent in May, the Turkish Statistical Institute said this week, in a latest sign that the economy is not on sure footing. The lira has slumped almost 20 percent against the dollar this year, hitting a record low in May. The current account deficit has widened to about 6.5 percent of gross domestic product.

There is concern among investors that Erdoğan might pick more unorthodox economic advisers to key positions. The government has, however, pledged to tackle inflation and is likely to take budgetary measures.

Economy Minister Nihat Zeybekçi said on Thursday that Turkey would take the steps needed to address a price spiral in some goods and the central bank would take the measures needed on interest rates. Zeybekçi, a long-time friend and ally of Erdoğan, said he didn’t know whether he would retain a position in the new government. The sole authority for that decision rested with the president, he said.

The central bank is due to hold its next meeting on interest rates on July 24.