* Lira at record low against euro
* Bond yields surge on foreign selling
* Passage of law triggers election speculation
By Daren Butler
ISTANBUL, March 13 (Reuters) - The Turkish lira hit a record low against the euro and bond yields rose to the highest in more than three months on Tuesday, as investors fretted about a widening current account, conflict in Syria and the possibility of early elections.
The lira weakened as far as 4.7761 to the euro and against the dollar touched a low of 3.8715, its weakest since mid-December.
“The lira has fared much worse than other emerging market currencies and that seems like a response to a worsening of the Turkish data,” said William Jackson, a senior emerging markets economist at Capital Economics.
He highlighted the rapid deterioration in the current account data in recent months. The deficit surged to $.7096 billion in January from $2.694 billion a year earlier, data showed on Monday.
The 10-year benchmark bond yield rose to 12.75 percent, its highest since Nov. 2017 and up from 12.38 a day earlier. It has risen some 90 basis points since the start of last week, also hit by higher-than-expected inflation and a ratings downgrade.
Moody’s cut Turkey’s sovereign rating further into junk territory last week, citing a weakening of institutions and the increased current account risks.
Another source of concern was the Turkish military’s operation against the Kurdish YPG militia in Syria’s Afrin, which has now reached a critical stage with the army and its rebel allies encircling the region’s main town.
Also, Turkey’s parliament passed a law revamping electoral regulations on Tuesday, backing controversial legislation the opposition has said could open the door to fraud and jeopardise the fairness of 2019 polls.
“It is not each of these (factors) on their own, but coming together, they may have harmed foreign perceptions,” said a forex trader at one bank. “It is worrying that the bond market selling pressure is mainly foreign selling.”
In a tap of a five-year fixed coupon bond on Tuesday, the Treasury sold a net 948 million lira ($245 million) at an average compound yield of 13.30 percent.
Turkish sovereign dollar bonds fell across the curve, with the 2041 issue down 0.6 cents to a more than one-year low, according to Thomson Reuters data. Turkish five-year credit default swaps rose 5 basis points to 174 bps, a one-week high, according to IHS Markit.
The changes in the electoral law seemed aimed at going for early elections, either July or perhaps October, said Timothy Ash, a strategist at Blue Bay Asset Management.
“Turkish markets never perform very well in the run-up to elections,” he said.
However, government officials have repeatedly said that early elections are not on the agenda and will be held as scheduled in 2019. (Additional reporting by Nevzat Devranoglu in Ankara Writing by Daren Butler Editing by David Dolan)