ISTANBUL: The Turkish benchmark bond yield rose on Friday after climbing some 15 basis points during the previous session when rising oil prices revived worries about the central bank returning to a tighter monetary policy.
The lira was slightly weaker against the dollar, though it stood below the psychological level of 2 against its euro-dollar basket.
Local shares were trading just below flat, after hitting an 18-month high earlier in the week, in line with the decline in the emerging markets index.
Turkey's two-year benchmark yield stood at 7.89 percent by 0923 GMT, after rising as high as 7.94 percent, compared with a previous close at 7.84 percent.
"The rise in bond yields this week results from higher oil prices as it created concerns about the possibility of the central bank to go back to its hawkish stance," wrote analysts at Halk Invest.
Since early June, the central bank has eased liquidity conditions in the market by lowering the average lira funding rate to around 7 percent from above 10 percent on prospects of falling inflation.
Oil fell below $113 a barrel on Friday, just below $113.22 a barrel, the highest settlement for front-month Brent since May 3. Higher oil prices weigh on the current account deficit as Turkey imports some 95 percent of its energy needs.
Traders said local banks selling bonds after they had fulfilled their primary dealer duty to buy at the debt auctions, which also pushed bond yields higher.
The benchmark bond yield has fallen to 7.47 percent earlier in the week as positive developments in Turkey's macroeconomic fundamentals such as falling inflation and current account gap boosted demand from investors.
The lira eased to 1.7919 against the dollar from 1.7831 late on Thursday. However it traded below the psychological level of 2 against its euro-dollar basket at 1.9949, from 1.9892.
"As the lira remains below 2 against the euro-dollar basket, we can't talk about a significant forex buying in the market. The lira's weakening against the dollar is completely related to the global strengthening of the dollar. There isn't any local reason," said the treasury manager of a brokerage house.
The lira began the week at its strongest level against the dollar in three months at 1.7735, with the fall in inflation.
Istanbul's main share index were down 0.27 percent at 64,330 points, in line with a fall of 0.30 percent in the MSCI emerging markets index.
Shares of Turkish petrochemicals maker Petkim were 1 percent down at 1.98 lira after the company posted a second-quarter loss of 36.7 million lira ($21 million), slightly lower than expectations, as rising production costs overshadowed an increase in sales.
Shares if Boyner holding fell 2.56 percent to 3.8 lira after the Tan family, owners of retailer YKM, said they will object to the decision of the Competition Board allowing Boyner Holding to acquire 63 percent of YKM at the administrative court.
Turkish retail group Boyner Holding bought a 63 percent stake in YKM for 190 million lira in February, in Turkey's largest ever deal in non-food retail.
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