Turkish assets, lira hit as ruling party prepares to replace prime minister

Turkish stocks fell and bond yields surged on May 5 after officials said overnight that the ruling party was set to replace Prime Minister Ahmet Davuto?lu at an extraordinary congress in the coming weeks.

The decision, confirmed to Reuters by five Justice and Development Party (AKP) officials, came after a meeting of more than 1.5 hours late May 4 between Davuto?lu and President Recep Tayyip Erdo?an that followed weeks of public tension between the two men.

"The spike in political tension has weighed on TRY-denominated assets, amid a backdrop of deteriorating global risk appetite," Finansbank said in a note.

"The political environment is very unpredictable, and this will certainly have negative repercussions for Turkey's risk premium, financial volatility and macroeconomic outlook."

The 10-year bond yield rose to 9.95 percent from 9.62 percent on May 4. The BIST 100 index, the broadest measure of Istanbul stock performance, fell 2.1 percent to 77,697 at 06:44 GMT.

The lira, which touched a level of 2.9765 late on May 4 after the news emerged, stood at 2.9265. It had been below 2.8 against the dollar on May 2, the firmest in six months.
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