Turkish bond yields jump again
Longer-term Turkish bond yields continued to move sharply higher after the country's debt lost its investment grade status in the previous week, as economists cautioned the central bank might be willing to pursue even further interest rate cuts despite recent above-target readings on inflation.
On 23 September, ratings agency Moody's downgraded the nation's long-term credit rating, after the close of trading, from Baa3 to Ba1.
That sent yields on the country's 10-year bonds rocketing by 40 basis points when markets reopened on 26 September.
As of 1527 BST on the following day they were higher by another 20 basis points to reach 4.481%, although the Turkish lira was well-behaved, trading just 0.02% lower at 2.9806 against the US dollar.
Gross domestic product data for the second quarter had revealed an economy that was slowing even before politics in Ankara were rocked by a failed military coup and follow-on crackdown on various sectors of society by the country's president, Tayyip Erdogan.
Compounding matters, more timely figures suggested the pace of expansion had slowed sharply since then, with retail spending on 'big-ticket' items weaker alongside a slump in Turkish industry,
"Overall, we think GDP growth will come in below 2% y/y in the coming quarters, compared with growth of 4% y/y in the first half of the year. The recent run of weaker activity data seems to have shifted the central bank’s focus onto growth too. Against that backdrop, the MPC is likely to continue to ignore above-target inflation and ease monetary policy further," Neil Shearing, William Jackson and Liza Ermolenko at Capital Economics said in a research note sent to clients.