ISTANBUL: Turkish bond yields rose and the lira fell more than one percent versus the dollar on Tuesday, though due to the central bank's supportive extra monetary tightening the lira's decline was less marked than those suffered by currencies among emerging market peers.
The central bank held an expensive intraday repo auction to inject 3 billion lira into the markets, just as it did on Monday and Friday to tighten monetary conditions.
The average yield at the intraday repo auction stood at 10.69 percent, almost double the fixed rate of 5.75 percent applied to the bank's usual repo auctions.
However, by 1501 GMT, the lira traded at 1.7810 versus the dollar, weaker than 1.7632 late on Monday. Against a euro-dollar basket it traded at 2.0475, easing from 2.0312.
"The lira has weakened as investors sold for profit taking due to euro zone worries. But its losses versus the dollar were limited compared with other emerging currencies thanks to central bank's lira supportive additional tightening," said Bilge Gonen, forex desk manager at Eurobank Tekfen.
Turkey's central bank has been applying what it calls an "exceptional days" policy since Friday in the wake of high April inflation data.
A biweekly survey from the central bank showed the year-end inflation expectations rose to 7.62 percent, way above the central bank's year-end target of 5 percent.
The "exceptional days" policy mainly consists of the bank holding intraday repo auctions at which it charges borrowers higher rates than at its usual repo auctions to provide lira liquidity.
Since late 2010, the central bank has been trying to keep inflation and the current account deficit in check by a multi-tool policy mix based on variable daily injections of lira funding, a flexible corridor between overnight lending and borrowing rates and high bank reserve requirements.
The yield on the benchmark bond maturing on March 5, 2014 closed at 9.53 percent, up from a previous close at 9.46 percent, despite its successful tap where the treasury borrowed 995.2 million lira ($565 million) from domestic markets, including non-competitive sales, than a forecast of 845 million lira.
"This was a little auction. Due to higher funding costs local investors were not very interested in it. But we saw some foreign bids in the auction. And the treasury borrowed the total amount it targeted," said a fixed income trader.
The treasury planned to borrow 1 billion lira from domestic markets in May, versus a domestic debt redemption of 1.7 billion lira. Tuesday's auction was the sole debt sale this month.
"The yields rose despite the successful debt auction as foreign investors sold for profit taking due to the deterioration of global risk sentiment," the trader said.
The main stock index closed 0.1 percent down at 58,749 points, outperforming a 1 percent slide in the MSCI emerging markets index.
Turkish markets were unmoved by Turkish Statistics Institute data showing industrial production rose 2.4 percent year-on-year in March, beating a Reuters poll forecast for an increase of 2.25 percent.
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