Interest Rates - Interest Rates and Yield Curves for Turkey...

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Unformatted text preview: Interest Rates and Yield Curves for Turkey ECON 311 Elif AKBOSTANCI Nominal and Real Interest Rates Source: CBRT Financial Stability Report Source: zatay, 2005 Source: CBT Financial Stability Report Source: CBT Financial Stability Report 2009 Source: CBRT Inflation Report 2007 II Source: CBRT Inflation Report 2009 I Source: CBRT Inflation Report 2009 IV Source: CBRT Inflation Report 2009 IV Source: zatay, 2005 The Eurobond spreads could be used as a proxy for the importance of the fiscal dominance. For new members of the EU, Eurobond spreads have generally hovered around 50 basis points throughout 2004. The lowest level of Turkish Eurobond spreads was attained on February 2005 with 280 basis points.To put it differently, the default risk level is much lower compared to the recent past, but the absolute value of the spread is still sizable (Figure 1c). (zatay, 2005) Source: CBT Financial Stability Report 2009 Yield Curves "Analyzing the yield curve that shows interest rates in the ISE with different maturities, the interest rates have been realized at a lower level in each maturity as of 24 April 2006 compared to the end of the previous year. This development stems from the expectations that the downward tendency in inflation will continue in 2006 as well. Nevertheless, the more horizontal course of the longer maturity end of the yield curves compared to the previous periods confirms the cautious attitude of economic agents towards their future risk perceptions in the said period (Graph 20)." (Source: Inflation Report of CBRT 2006 II) "The interests of the government security markets in the ISE increased in all maturities as of the first week of May where international liquidity conditions had started to deteriorate and yield curves started to shift upwards (Graph 16). The upward trend of interests continued until monetary policy decisions were made in the Monetary Policy Committee on 25 June 2006. Nevertheless, as a result of the Central Bank's response regarding monetary policy and the normalization of international liquidity conditions, a downward trend was observed in the longer maturity end of the yield curve as of the beginning of July." (Source: Inflation Report of CBRT 2006 III) "With the acknowledgement of the CBRT's determination to fight against inflation, a downward movement was observed at the longer maturity end of the yield curve at the end of June. At the end of August 2006, yields declined in each maturity compared to the end of June. Positive inflation data and the decline in risk premium were effective in this development (Graph 5.1.3). Because of the September inflation figures that were above expectations, the tendency of risk perceptions to deteriorate within the month and the liquidity squeeze led to increases in yields. Although, yields displayed a relative decline in October compared to the previous month, the yield curve of 26 October 2006 formed at higher levels in maturities longer than twelve months compared to that of 31 August 2006." (Source: Inflation Report of CBRT 2006 IV) Source: CBRT Inflation Report 2007 I The yield curve of September 29, 2006 followed an upward course as a result of September inflation figures that were above expectations and the deterioration of risk perceptions within the month. In the last quarter of the year, thanks to the positive inflation data, the resolute stance of the CBRT and the ebbing uncertainties about inflation, the yields of December 29, 2006 and January 11, 2007 reached lower levels for all maturities over four months, compared to those of September 29, 2006 (Graph 5.1.4). The reason for the rise in maturities shorter than four months is that the interest rate in repo auctions was realized at above 18 percent after the temporary liquidity squeeze. Moreover, the fact that the yield curves of December 29 and January 11 are downwards in maturities longer than 18 months supports the downward trend observed in the inflation expectations. Source: CBRT Inflation Report 2007 I Source: CBRT Inflation Report 2007 II In the first quarter of 2007, the prevailing resolute stance of monetary policy supported the fall in long term interest rates by easing the uncertainty over inflation. The yields of April 20, 2007 remained at lower levels for all maturities compared to the yields of end2006, owing to the reduced risk premium and waning inflation expectations (Graph 5.1.4). Moreover, the downward slope of yield curves in maturities longer than 18 months shows that economic agents maintain their expectations for the continuation of the disinflation process in the medium term. Source: CBRT Inflation Report 2007 II Source: CBRT Inflation Report 2007 III In the second quarter of 2007, the ongoing decisive stance of monetary policy supported the decline in longterm interest rates by curbing inflation expectations and easing the uncertainty over inflation. The yields of 20 July 2007 remained at lower levels for all maturities compared to the yields of the first quarter of 2007, due to the reduced risk premium and the waning inflation expectations (Graph 5.1.4). Moreover, the downward slope of yield curves in maturities longer than 18 months shows that economic agents maintain their expectations for the continuation of the disinflation process in the medium term. Source: CBRT Inflation Report 2007 III Source: CBRT Inflation Report 2008 IV Source: CBRT Inflation Report 2009 I Source: CBRT Inflation Report 2009 III ...
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