The Turkish lira closed 1.2 percent weaker against the dollar and bond yields rose nearly 20 basis points on Friday as markets remained sceptical over the central bank's strategy with rising European borrowing costs fuelling global risk aversion.
Turkish shares rebounded 2.92 percent after the previous day's sell-off, helped by news that eurozone member states were discussing dropping private sector involvement from the permanent bailout mechanism. The lira closed at 1.8860 versus the dollar on the interbank market on Friday, compared with Thursday's close at 1.8629.
During intraday trade, the lira eased to 1.8902, its weakest level since October 5, as growing European debt worries drove investors away from riskier assets. The lira has lost nearly 3 percent of its value against the greenback over the week. But other currencies have fared worse.
"The lira stood relatively strong among its peers. However, this decoupling would be limited and we could see the lira to decline further," said a forex desk manager of a bank. Against a euro-dollar basket the lira traded at 2.1860, a touch weaker than a previous close of 2.1813. The yield on Turkey's benchmark bond maturing in July 2013 closed at 10.89 percent compared with a Thursday's close of 10.70 percent.
"In an environment where Germany hardly borrows from markets, it's normal to see Turkish yields rising," said a forex trader of a bank. The benchmark yield rose above 11 percent during intraday trade due to the low global risk appetite and the central bank's liquidity measures. The funding amount announced by the central bank, which was seen as less than the markets' need, also contributed to the rise in yields, analysts said.
The Turkish Central Bank said on Friday it would announce regularly the funding amount to be provided by weekly repo auctions to make it easier for banks to manage their liquidity needs and foresee their funding costs. The bank set 20 billion lira ($10.68 billion) as the lower limit of weekly funding on any day during the period of November 25-December 8.
Turkey's main share index closed 2.92 percent up at 51,071.22 points on Friday, performing in sharp contrast to an emerging markets index that was down 1.07 percent. Turkish shares closed at a 21-month low on Thursday at 49,621 points, stung by Fitch rating agency's decision a day earlier to revise its outlook for Turkey from positive to stable and Europe's ongoing debt woes. After Thursday's sharp losses, shares of Turkcell and Turk Telecom recovered completely, rising 10.2 percent and 8.15 percent, respectively.
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