ISTANBUL: Turkish shares and bonds hit their highest levels since mid-2013 on Friday, with airlines surging in particular, after a slump in oil prices raised hopes of lower inflation and interest rate cuts.
The two-year benchmark bond yield dropped to 7.49 percent, its lowest since July 2013, while the 10-year benchmark yield fell to 7.71 Istanbul's main share index ended the morning session up 0.93 percent at 85,479.04 points, having hit its highest level since May 31 last year when nationwide anti-government protests began to dent investor confidence in Turkey.
"We expect the positive impact of the more than 7 percent fall in oil prices on BIST (Istanbul stock exchange) to continue," Oyak Securities said in a note.
"The index will maintain its target position of 86,500-87,000 resistance levels, will support at 83,000 points technically," Oyak said.
The Turkish lira firmed to 2.2113 against the dollar by 1056 GMT from 2.2160 late on Thursday.
Shares in Turkish Airlines and Pegasus jumped on improved profitability expectations due to the sharp fall in oil prices after OPEC's decision to refrain from cutting output despite a supply glut.
Flag-carrier Turkish Airlines shares traded 6.75 percent higher at 9.17 lira, having touched an all-time high of 9.43 lira during the morning. Pegasus shares were up 5.76 percent to 33.05 lira.
"Oil at these levels is positive for airlines. With fuel accounting for 35-40 percent of airline companies' costs, it results in serious reductions on the costs side. It will positively impact balance sheets and profitability," said Is Investment aviation analyst Efe Kalkandelen. Market sentiment was also supported by data showing a narrowing in the trade deficit.
The Turkish Statistics Institute said the deficit narrowed to $6.25 billion in October from $7.43 billion a year earlier.
"Overall, the rebalancing trend continues in foreign trade, yet its pace has recently decelerated.
We foresee further rebalancing through the end of this year, and expect 2014 foreign trade deficit at $80 billion," said Finansbank economist Deniz Cicek in a note.
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