Bond Yields and Political Environment

South Africa Russia: Real yields on equivalent debt from South Africa and Russia, countries with similar credit ratings, are at least 190 basis points lower, according to Business Week. Bondholders’ wariness reflects security risks in Turkey and a worsening political environment after failed coalition talks triggered early elections. The slump in Turkish government bonds has sent two-year yields rising nearly 3 percentage points this year, lifting the extra rate over inflation to more than 4 per cent, the highest since 2011. It also reveals investors are convinced inflation has bottomed as the third-biggest depreciation among major currencies this year lifts prices for imported goods while the expected increase in US interest rates threatens further lira declines. Police Raid As the country gears up for general elections in November following the inconclusive June vote, tensions are rising. The attractiveness of the currently elevated real Turkish bond yields on offer is tempered by a high political risk premium, prospects of increasing domestic inflationary readings from exchange rate pass-through, and high volatility from movements in rates and currency markets, Phoenix Kalen, says an emerging market strategist at Societe Generale in London. (news.financializer.com). As reported in the news.