The yield on the Nov. 7, 2012 benchmark bond traded as high as 9.14 percent, hitting its highest levels since early March, and was at 9.03 percent at 0822 GMT, up from 8.89 percent late on Wednesday and 8.61 percent before the central bank move.
Bond yields extended yesterday's rise after the central bank surprised markets by raising banks' reserve requirement ratios (RRR) for the fifth time since September.
The steep increases in RRRs hit banking sector shares, where most foreign investment is concentrated in the Istanbul Stock Exchange. Banking stocks, which have a weighting of more than 40 percent in the benchmark index, fell 0.5 percent.
"The immediate impact of the rise in reserve requirement ratios will be visible in banking sector," said Tera Brokers in a note to clients. Tera forecast a 4-5 percent decline in banks bottom lines due to the contraction in margins.
The main ISE 100 share index dropped 0.3 percent to 63,523.29 points by 0828 GMT, after a 1.78 percent decline on Wednesday. The MSCI emerging markets benchmark index gained 0.6 percent.
The central bank has been criticised by investors and credit rating agencies for adopting an unorthodox monetary policy.
The bank cut interest rates in December and January as part of a strategy to reduce "hot money flows" and weaken the lira in order to tame a burgeoning current account deficit, while relying on higher RRRs to curb domestic credit growth.
The central bank said it would continue to monitor the tightening effect of its policy mix. It left its policy rate, the one-week repo rate, as expected unchanged at 6.25 percent. The overnight borrowing rate remained at 1.5 percent and the overnight lending rate at 9 percent.
Sentiment in global markets was unsupportive. European shares slipped in early trade as caution persisted over the euro zone debt crisis after Portugal moved closer to requiring a bailout following political turmoil in the country.
The lira strengthened to 1.5569 to the dollar, from a previous close of 1.5580.
Among stocks Turkish Airlines, the national carrier, shares dropped 3.6 percent to 4.35 lira after 2010 net profit dropped 49 percent, missing forecasts.
Turkcell, Turkey's biggest mobile phone company, shares rose 1.7 percent to 9.58 lira after shareholder TeliaSonera said it will take legal action against Turkcell's chairman.