Tourists check currency exchange rates outside an currency exchange office in central Istanbul January 6, 2014. (REUTERS/Murad Sezer)
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Turkey's government bond yield curve has inverted for the first time in six months, suggesting a growing number of traders are betting the central bank will be forced into a large interest rate hike to support the lira.The yield on two-year lira government bonds was quoted at 10.23 percent Tuesday, a touch higher than 10-year bonds at 10.16 percent, traders said.Instead, some traders think the Turkish central bank, which has so far resisted the idea of major monetary tightening, will be forced into it at some time in coming months by high inflation and the need to support the lira.Although the central bank lifted the overnight lending rate by 125 bps to 7.75 percent in the second half of last year, it has resisted market pressure for much larger hikes – many in the market think rate rises of 300 or even 400 bps from current levels may be needed to stabilize the lira.
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