ISTANBUL: Turkish two-year bond yields fell below 8 percent on Monday, the lowest since September 2011, driven by expectations that the central bank will ease monetary policy and investors searching for more rewarding bets than euro zone government debt.
The lira was also firmer, trading at 1.8190 against the dollar at 0800 GMT, strengthening from 1.8215 late on Friday. Against a euro-dollar basket, it strengthened to 2.0265 from 2.0319.
Global economic weakness also helped drive the fall in yields.
"The cooling in the global economy is being fully reflected in bond prices. Interest rates in Europe have turned negative and thus foreign interest is growing in emerging countries like ours," said a treasury desk executive at one bank.
"The expected central bank easing and falling inflation is supporting this fall (in yields)," he said.
The yield on the March 5, 2014 benchmark bond fell as low as 7.93 percent, its lowest since late September 2011, having closed at 8.02 percent on Friday.
That still represents a healthy return compared to almost-zero German yields and comes from an economy with far lower debt than euro zone economies like Spain or Italy which offer similar yields.
Central Bank Governor Erdem Basci said on Friday the bank may revise down its year-end 6.5 percent inflation forecast in July, after data showed inflation dropped more sharply than expected in June.
The drop in price growth has triggered expectations that the bank will cut its overnight lending rate soon to help a slowing economy.
The lending rate stands at 11.50 percent although the one-week repo policy rate is at a record low of 5.75 percent. The central bank's next policy meeting is on July 19.
"The optimistic and confident statements regarding inflation outlook of the governor clearly shows the intention to loosen monetary policy further in the coming period," Oyak Securities said in a note.
The falling inflation expectations were also illustrated by a latest central bank survey released on Friday. The consumer price index was seen at 7.02 percent at the end of this year, down from 7.38 percent in the previous survey two weeks earlier.
Market sentiment was also supported by data on Monday showing industrial production grew a larger-than-expected 5.9 percent in May.
Turkey's main share index was flat at 62,779.22 points, outperforming a 0.97 percent fall in the MSCI emerging markets index.
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