Turkish lira volatility dulls allure of record yields for Amundi

Europe’s biggest fund manager says it’s still not time to buy Turkish bonds, even after the biggest selloff in emerging markets this quarter.While the yield on Turkey’s local-currency debt is “looking more attractive,” the swings in the lira reduce the appeal of owning the bonds, according to Esther Law, a London-based investment manager for emerging-market debt at Amundi, which oversees more than €1tn ($1.06tn) in assets worldwide.The lira has lost 14% of its value against the dollar this quarter, plunging to successive records, and falling more than any other emerging-market currency over the period as a surge in US Treasury yields and continued political turmoil after a failed coup attempt in July kept foreign investors away. They’ve dumped Turkish bonds every week since October, taking their holdings to less than 20%, the lowest share since 2012.The Ankara-based Treasury sold 10-year debt at a record-high yield of 11.55% on December 13. That pays investors almost 370 basis points above expected inflation over the next 12 months, as measured by a central bank survey of economists and businesses. Still, with a gauge of expected price swings of the lira versus the dollar reaching an 18-month high of 18.75% last week, the cost of hedging against currency swings threatens to eat in to potential returns for non-domestic investors.The nation’s 10-year lira bond yielded 11.44% on Wednesday.“The volatility in the Turkish lira is reducing the attractiveness of holding Turkish local bonds from a total returns perspective,” Law said.