UPDATE 1-Turkish stocks and lira stabilise amid political tensions; bonds nudge higher

Turkish assets steadied on Monday, with stocks and the lira broadly stable and international bonds edging higher after last week's sharp swings triggered by a court ruling targeting the main opposition leadership. On May 21, the central bank intervened to support the lira after it slid to record lows. Despite Monday's stabilisation, markets remain highly sensitive ⁠to developments around the CHP and ⁠broader political risks, analysts said.

Turkish assets steadied on Monday, with stocks and the lira broadly stable and international bonds edging higher after last week's sharp swings triggered by a court ruling targeting the main opposition leadership. Tensions escalated over the ‌weekend when riot police used tear gas to enter CHP headquarters in Ankara to enforce an eviction order against officials inside.

The benchmark BIST 100 index opened 0.6% higher but pared gains to trade up 0.21% at 1300 GMT. The index hit six-week lows on Friday, before rebounding. The banking index gained 1.26% ‌on Monday, signalling a cautious recovery in a market still sensitive to political risk. The lira traded at 45.7205 against the dollar, near record ‌lows and little changed from Friday's close.

In debt markets, the 2041 bond was up 0.2 cents to 84.7 cents on the dollar, Tradeweb data showed. Five-year credit default swaps - which insure exposure to sovereign bonds against default - stood at 252.8 basis points, unchanged from Friday, S&P Global Market Intelligence data showed. A Turkish court last week annulled the main opposition CHP's 2023 ⁠congress that ​elected leader Ozgur Ozel, citing procedural irregularities. ⁠The ruling effectively removed Ozel, deepening a political crisis that has unsettled investors.

Ozel's allies have condemned the decision as a "judicial coup". He has vowed to challenge it in court ⁠and remain at party headquarters, while calling for a new congress as soon as possible. Former leader Kemal Kilicdaroglu said a congress would be held at an "appropriate" time. POLITICAL ​RISK

Analysts said the ruling could test Turkey's democratic institutions and potentially extend President Tayyip Erdogan's 23-year rule. "As usual, and having watched similar ⁠roller coasters in the past, I believe that the dust will settle in the short run, after a period of volatility and questions regarding the political stability - lira, CDS - are to ⁠be ​closely watched," said Swissquote senior analyst Ipek Ozkardeskaya.

"Unless the latter (weekend) events lead to broader unrest and cracks in the broader system ... the long-term impact will likely remain limited." After the court decision, the BIST 100 fell as much as 6%, triggering a market circuit breaker, while international bonds hit multi-week ⁠lows. On May 21, the central bank intervened to support the lira after it slid to record lows.

Despite Monday's stabilisation, markets remain highly sensitive ⁠to developments around the CHP and ⁠broader political risks, analysts said. Piotr Matys, senior FX analyst at InTouch Capital Markets, said Turkish stocks are also failing to fully benefit from broader market optimism that the Iran war could end soon.

Trading volumes were thin, ‌with UK and U.S. ‌markets shut for public holidays.