Turkish bonds down as tight lira funding expected

ISTANBUL: The Turkish benchmark bond yield rose 5 basis points in early trade of Friday as investors anticipate the central bank to tighten lira funding to protect a currency as deepening European funding difficulties drive investors towards safer assets.

The yield on Turkey's benchmark bond maturing in July 2013 stood at 10.65 percent on Friday compared with a previous close of 10.60 percent.

"Tight lira liquidity, concerns about euro zone and the lira's decline all contribute to the rise of bond yields. The upward trend could continue further but, I think above 11 percent, we would see buying," said a fund manager of a bank.

By 0913 GMT, the lira stood at 1.8161 versus the dollar, compared with Thursday's interbank close of 1.8110. Against its euro-dollar basket the lira stood at 2.1352, slightly stronger than previous close of 2.1428.

The outflows from emerging markets due to declining global risk appetite was pressuring the lira towards a test of the 1.83 per dollar level, said a forex trader of a bank in Istanbul.

The yield premium of Spanish 10-year government bonds rose to over 500 basis points above German Bunds -- a euro-era high -- after Spain paid an average yield of 6.975 percent on Thursday to sell its bonds, the highest rate since 1997 and just shy of the 7-percent level seen as unsustainable.

A bond auction in Paris on Thursday also reflected growing concerns that France is getting dragged deeper into the crisis, with the triple-A rated country's borrowing costs over two and four years jumping by around half a percentage point.

The main Turkish share index closed down 0.42 percent at 54,858.99 points, outperforming against the emerging markets index which was down 1.7 percent.

"As banks already dropped 2 to 5 percent yesterday... we may see short-term bottoming. Technically speaking, 54,200-54,500 levels should provide support," wrote analysts of Ekspres Invest.