Turkish dollar bond trading surges on rate hike expectations


Trading in Turkey’s dollar-denominated sovereign bonds has jumped to the highest level in almost two years on anticipation that the central bank will switch to monetary orthodoxy at a meeting on Thursday, Reuters reported.

Daily trading volume in November has averaged $489.8 million, the most since at least the beginning of last year, Reuters said on Tuesday, citing data from MarketAxess.

Turkey has a new central bank governor – former finance minister Naci Ağbal – and his arrival just over a week ago along with new Treasury and Finance Minister Lutfi Elvan, has sparked a rally in Turkish assets including the lira, stocks and Eurobonds.

Ağbal and his Monetary Policy Committee are expected to raise the benchmark interest rate by 4.75 percentage points to 15 percent, according to the median estimate in a Reuters poll of economists. Annual inflation in the country stands at 11.9 percent.

Turkish President Recep Tayyip Erdoğan has appointed Ağbal and Elvan after the central bank’s monetary unorthodoxy helped spark a sell-off in the lira. The currency hit a record low of 8.58 per dollar on Nov. 6.

The lira fell 0.4 percent to 7.7253 per dollar on Wednesday.

Tatiana Lysenko, an emerging markets economist at S&P Global Ratings, said there were some positive signs of a return to more conventional and transparent macroeconomic policies in Turkey over the medium term, rather than just short-term change. S&P expects the central bank to raise the benchmark interest rate by about 4 percentage points on Thursday, she said.

Rather than twiddling with an array of interest rates and monetary policy tools, investors want to see the central bank raising rates and that the benchmark is indeed its main policy instrument, Lysenko said.



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