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UPDATE 2-Turkish lira hits record low on geopolitical concerns

(Adds eurobond details, updates prices)

ISTANBUL, Oct 7 (Reuters) - Turkey’s lira touched a record low against the dollar on Wednesday, hit by investor unease over possible U.S. sanctions, fraught ties with the European Union and the ongoing Caucasus conflict.

The currency has lost 24% of its value this year on worries over the central bank’s depleted forex reserves, costly interventions in the currency market, and geopolitical issues.

The lira hit a record low of 7.8850 against the U.S. currency, weakening from a close of 7.8050 on Wednesday. By 1232 GMT it stood at 7.8800.

Concerns over possible U.S. sanctions resurfaced after Bloomberg reported on Tuesday that Ankara would begin testing the Russian S-400 missile defence system.

Tensions with the EU, meanwhile, appeared to rise after President Tayyip Erdogan said on Tuesday decisions at an EU summit last week over disputes including maritime claims in the eastern Mediterranean had been insufficient to resolve disagreements.

Erdogan and a Turkish Cypriot leader also announced the partial reopening of a Cypriot resort abandoned since the 1974 invasion by Turkey. This drew condemnation from Greece and the Greek Cypriot government.

“The EU-related concerns over geopolitical tensions decreased in recent days due to a move towards dialogue. But as of this week, an increase in tensions in both Azerbaijan and the EU can be observed,” a banker said.

Fighting between Azerbaijan and Armenian forces in Nagorno-Karabakh is at its most intense in 25 years. Ankara’s backing for Baku has set Turkey apart from other big nations, alarming NATO allies who seek a ceasefire.

Investors were also assessing the Treasury’s first eurobond issue since February. Despite the tensions and financial market turbulence, Turkey sold a $2.5 billion 5-year eurobond on Tuesday that gave buyers 6.4% interest.

Demand was three times the amount it borrowed, the Treasury said. Turkey has borrowed $6.5 billion from international markets this year, it said, out of a planned $9 billion.

Turkey’s dollar-denominated bonds weakened, with the April 2043 and February 2045 issues both losing more than 1 cent on the dollar, their biggest daily fall in two weeks, Tradeweb data showed.

Five-year Turkey credit default swaps rose to 511 basis points, up 9 basis points from Tuesday’s close, according to IHS Markit. (Reporting by Ali Kucukgocmen; additional reporting by Marc Jones and Karin Strohecker in London; Writing by Ezgi Erkoyun; Editing by Toby Chopra)

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