July 12, 2019 / 3:11 PM / a year ago

Turkish lira slides over possible U.S. sanctions after S-400 delivery

ISTANBUL, July 12 (Reuters) - The Turkish lira was 1.3% weaker against the dollar on Friday over U.S. sanction worries, after Russia delivered S-400 air defence missile system parts to Turkey.

The first parts of the S-400 air defence system were flown to a military air base near the capital Ankara, a move expected to trigger U.S. sanctions against a NATO ally and drive a wedge into the heart of the Western military alliance.

At 1450 GMT, the lira stood at 5.76 against the U.S. currency, having weakened as far as 5.7780 earlier.

Cristian Maggio, head of emerging markets strategy at TD Securities, said markets had barely begun to react to the S-400 delivery and that U.S. sanctions risks should not be underestimated.

“They will have consequences for geopolitics and a non-negligible risk for the Turkish economy, which is already in bad shape,” Maggio said.

The United States says the Russian military hardware is not compatible with NATO systems and that the acquisition may lead to Ankara’s expulsion from an F-35 fighter jet programme, in which Turkey is a manufacturing partner.

Fear over a fresh bout of sanctions also saw Turkey’s dollar-denominated sovereign bonds tumble sharply and the price of insuring exposure to government debt spike.

Longer-dated maturities took the biggest hit, with 2038 and 2040 bonds losing around 2 cents, according to Tradeweb data.

The main BIST 100 index fell 2.35% while the banking index was down more than 3.3% at 1450 GMT. (Reporting by Ezgi Erkoyun in Istanbul and Tom Arnold and Karin Strohecker in London; Writing by Ezgi Erkoyun Editing by Dominic Evans)

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