High yields at debt auction hurt nervous Turkish markets

ANKARA – Turkish markets fell yesterday as yields at a Treasury debt auction came to higher than expected due to the impact of political uncertainty that has raised the cost of managing Turkey’s crisis-swollen debt load. The battered lira touched 1.6 million to the dollar before closing at best bids of 1,596,000 on the interbank market, down from Friday’s close of 1,558,000. The main stock index ended down 2.47 percent at 9,230.7 points, the lowest close since October 19, while yields on the busiest April 9, 2003 bills rose to 71.83 percent from Friday’s 70.50 percent. The prime minister’s office issued a statement yesterday saying that «general uncertainty» must end in order for Turkey to reap the benefits of recent economic improvements. Prime Minister Bulent Ecevit, recovering from illness at home since May, met Economy Minister Kemal Dervis, who said the premier looked well and that they had discussed the state of the economy with other top economic officials. But politics continued to plague the markets due to a rift in the three-party coalition government over reforms Turkey must pass to begin EU membership talks. The Treasury paid the price of the political problems at yesterday’s auction when it sold a net 1,446 trillion lira ($912.6 million) of three-month bills at a maximum yield of 69.64 percent. Analysts polled by Reuters had forecast a yield of 62-63 percent. Demand at the auction was a nominal 1,722.9 trillion lira, just covering the nominal 1,650.3 trillion lira that the Treasury had said in advance it wanted to borrow. «I suppose it shows that although they can get the demand they wanted, it’s at a price,» said Caroline Gorman, analyst at 4Cast in London. «I was worried they weren’t going to sell the amount that they announced.» The Treasury last auctioned three-month bills on May 13 at a maximum yield of 55.05 percent. Since then, political uncertainty stemming from Ecevit’s illness and rifts in his coalition government over the EU have sent yields on the secondary debt market soaring to over 70 percent on benchmark April 9, 2003 bills. Yesterday’s auction was one of three this week as the Treasury works to service 3,999 trillion lira of debt tomorrow. The Treasury will hold two auctions today for 203-day treasury bills and 350-day dollar-denominated paper. Analysts said the auctions were seen as a test of investor demand as markets have fallen sharply in recent weeks. «The system is under pressure from the current high bond yields. That is likely to be felt during the Treasury bill auctions this week. I do not expect much serious activity in stocks until the outcome of the auctions,» said Metin Turkes, strategist at Deniz Investment. Hakan Avci, strategist at Global Securities, said markets were eager to see progress in the reforms needed for the EU, which include abolishing the death penalty and easing restrictions on the use of the Kurdish language. He said the next few weeks would be crucial for developments on that front given that Parliament normally breaks for summer recess at the start of July.

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