Wednesday, September 28

Bond yields tumble after Turkey unveils latest credit tweaks

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ANKARA — Turkish benchmark bond yields fell by around 300 basis points on Monday after the central bank adopted its latest regulations meant to boost certain types of corporate credit in the face of months of rising lending rates.

On Saturday, the central bank unveiled new required bond holdings for lenders, boosting demand on Monday.

The measures are meant to address the widening gap between the bank’s policy rate and lending rates, days after it shocked markets with a 100 basis-point interest rate cut to 13%.

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The 2-year benchmark bond yield tumbled some 360 ​​basis points after the announcement, which required lenders to hold bonds for corporate loans extended at certain coefficients above the central bank’s reference rate of 16.32%

The 10-year benchmark bond yield fell to 14.19% from 16.93% at Friday’s close, while the 2-year benchmark fell to 14.02% from 17.62%.

“The new measures tightened the central bank’s control over credit and bond markets,” a senior banker told Reuters. “The banks need to buy and hold more bonds if they don’t lend money according to government plans.”

Turkey’s lira stood at 18.1205 to the dollar as of 0835 GMT, slightly weaker than Friday’s close of 18.085. It has lost 27% so far this year, and shed 44% last year, largely due to unorthodox monetary easing in the face of 80% inflation.

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The central bank, which has turned to macroprudential policies to manage credit, replaced a reserve requirement ratio of 20% cash for credits with 30% bond collateral.

It also mandated lenders to maintain up to 90% bonds for some corporate credits according to the level of interest rates, effectively discouraging banks to lend with high rates.

Excluding rates for net-exporters that are favored by the government’s economic program, corporate credit rates were averaging around 40% before the measures were announced.

Bankers also say the central bank’s limiting of loan growth to 10% for some corporate loans will slow the lending market.

Turkish authorities have previously taken steps to limit loans to companies that are not net exporters as part of its effort to flip the big current account deficit to a surplus. (Reporting by Nevzat Devranoglu; Editing by Edmund Blair and Jonathan Spicer)