ISTANBUL — The Turkish lira wobbled on Friday as investors weighed the impact of steps introduced to support the economy, while local currency bond yields slid after the central bank said banks should hold additional lira bonds for foreign currency deposits.
The lira weakened as far as 17.26 against the dollar in early trade from a close of 17.20. It stood flat at 17.19 at 0856 GMT, having firmed at one point to 16.92.
The yields of two-year and 10-year lira-denominated bonds fell by around 2.5 percentage points as the central bank step was seen fueling bond demand.
“The central bank’s announcement that it will impose an obligation to allocate 3-10% bonds for foreign currency deposits means banks have a significant need for bonds,” said a bond dealer at one bank.
Despite the steps, the cost of insuring exposure to Turkey’s sovereign debt through credit default swaps stood at 790 bps -having more than doubled in the past 12 months to the highest level in 14 years, data from S&P Global showed.
The Borsa Istanbul’s banking index climbed more than 3.5% while the main blue chip BIST100 index traded some 0.7% higher.
Measures announced overnight included the Treasury issuing domestic bonds indexed to the revenues of state enterprises to encourage lira asset savings and a hike in the central bank’s required reserves ratio for lira commercial cash loans to 20% from 10%.
Separately, the central bank said banks will maintain additional lira long-term fixed-rate securities for foreign currency deposits as a complementary step to increasing the weight of lira securities in the collateral pool that becomes effective on June 24.
The central bank said banks should maintain securities amounting to 3% of foreign currency deposits on top of required reserves they have to set aside for those deposits. Banks who cannot direct customers to convert their forex savings to lira will have to maintain additional securities up to 10%.
Turkey’s sovereign dollar bonds nudged lower with the 2034 bond slipping 0.5 cents to trade at just over 88 cents in the dollar, Tradeweb data showed.
Longer-dated bonds had suffered sharp falls in recent days with many issues hitting record lows and most bonds maturing 2041 or thereafter now trading in the low to mid-60 cents in the dollar range.
(Additional reporting by Karin Strohecker in London; Writing by Daren Butler and Ezgi Erkoyun; Editing by Rashmi Aich and Frank Jack Daniel)