ISTANBUL: Turkish bond yields inched down on Friday as the central bank opted not to reduce excess liquidity, while the lira took support from improvement in global appetite for riskier assets.
Repo auctions on Friday saw the bank inject 5 billion lira ($2.84 billion) of one-month and 7 billion of one-week money, the same amounts that it drained from markets, leaving commercial banks with plenty of funds to place on the bond market.
By 0920 GMT, the yield on Turkey's benchmark bond maturing on Dec. 4, 2013 stood at 9.30 percent, down from a previous close at 9.36 percent.
"Today is the first day of a two-week reserve requirement period for banks. As they will need more liquidity the central bank opted not to tighten liquidity conditions further," said Tufan Comert, a strategist at Garanti Securities.
According to the central bank's reserve requirement strategy, banks in Turkey are required to hold on average 10.5 percent of their total lira deposits in central bank accounts.
Every two weeks, the central bank updates the amount that each bank is supposed to hold as reserve requirements, based on its total deposits of that period. Central banks use this tool to control loan growth.
Some analysts noted the benchmark yield could move between a range of 9.2-9.5 percent on Friday.
Banks usually prefer to sell some of their bond portfolios to meet liquidity needs when liquidity is tight.
The benchmark yield rose as far as 9.43 percent on Thursday after the central bank reduced the funds available to banks.
The lira, which should suffer if the banks leaves more currency in the system, traded at 1.7610 versus the dollar, a touch stronger than 1.7680 in late trade on Thursday.
Erkin Isik, a strategist at TEB wrote that the risk-on mood would likely prod the lira towards 2.03 versus the euro-dollar currency basket on Friday.
Against euro-dollar basket, the lira stood at 2.0362, compared with 2.0375 in late trade on Thursday.
Hopes Greece would soon sign a deal for a second bailout boosted global appetite for risk.
Turkey's main Istanbul share index was 0.49 percent up at 60,326 points, underperforming the MSCI emerging markets index which was 1.1 percent up.
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