Istanbul — While Turkish authorities may have stopped the lira from haemorrhaging, their measures may cost the nation’s debt and equity markets. By squeezing liquidity out of the offshore currency swap market, the banking regulator forced speculators betting against the lira to close their positions. That also made it much harder for foreign investors in local bonds and stocks to hedge their currency risk. Now, it looks like they are bailing. The yield on five-year local currency bonds jumped more than 250 basis points last week to a fresh record and the benchmark stock index led global losses. That is a sign that stop-gap actions to stem the currency slide had unintended consequences, even as the battered lira staged an impressive recovery. "The risk is you’re throwing the baby out with the bathwater," said Anders Faergemann, a fund manager at PineBridge Investments in London. "If you hold Turkish assets you’re now unable to hedge the currency. We saw that in Malaysia last year and...

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