Yields on lira debt rose to the highest in almost seven weeks as Turkey prepared for its biggest month of debt sales since November amid concern the Federal Reserve will end its bond-buying program this year.
Turkey plans to borrow 11.6 billion liras this month in five auctions, starting with the sale of four-year notes and 10-year inflation-linked bonds today and benchmark two-year debt tomorrow, according to a Treasury statement December 31. Two-year yields jumped to as high as 6.44 per cent last week, the highest since November 19.
The world's biggest bond rally among major emerging markets in 2012 may peter out as Fed minutes of its December meeting released January 3 showed policy makers will probably end their $85bn in monthly bond purchases, known as quantitative easing, this year. Yields rose earlier after a report that day showed a smaller-than-expected slowdown in Turkish inflation in December.
"The Treasury is unlucky that the debt sales coincided with the developments in the US," Ugur Kucuk, a fixed-income strategist at Is Investment Securities in Istanbul, Turkey's biggest brokerage, said. 4. Turkey will have to pay more at tomorrow's auction of two-year debt, he said.
The Treasury plans to sell 34.6bn liras of debt this quarter, up 89 per cent from the last three months of 2012. Tomorrow's sale of two-year securities comes after the government paid 5.77 per cent to raise 960 million liras for similar-maturity debt on December 11.
The yield on two-year benchmark notes rose as much as 16 basis points, or 0.16 percentage point, before ending the week at 6.36 per cent, according to data from Turk Ekonomi Bankasi AS. Yields dropped 483 basis points last year, the biggest decline among 20 emerging markets as foreign investors bought a record $16.2bn of the country's bonds.
"Participation of foreign investors will be crucial in the auctions," Murat Yardimci, head of trading at ING Bank AS in Istanbul, said.
Turkey is also planning to sell bonds due in 2022 tomorrow and 15-month zero-coupon bonds on January 15, according to a statement by the Treasury December 31.
The auctions come after the country's economic growth slowed to 1.6 per cent in the third quarter, the lowest level since a 2009 recession. The central bank lowered the benchmark repurchase rate last month by 25 basis points to 5.5 per cent.
The two-year yield jumped 12 basis points, the most in three months, on January 3 as a report from the statistics office showed inflation slowed to 6.2 per cent in December. That exceeded the 6 per cent median estimate in a survey of economists by Bloomberg.
* Bloomberg News