All bids for bill auction rejected for the first time in twenty weeks

Thursday, 28 January 2016 00:02 - - {{hitsCtrl.values.hits}}

Volatility witnessed on the short end of the yield curve

By Wealth Trust Securities

All bids received for yesterday’s weekly Treasury bill auction for the durations of 91 days, 182 days and 364 days were rejected for the first time in twenty weeks. The demand for high yields by investors was seen as the reason behind this move according to market sources. This in turn led to moderate volatility in secondary market yields on the short end of the yield curve, as the DFT-5 increasing trend in morning hours of trading was seen reversing following the outcome of the Treasury bill auction.

Selling interest in morning hours of trading by foreign and local market participants saw yields on the liquid maturities of 01.07.2019, 15.09.2019, 01.05.2020 and 01.08.2021 increase to daily highs of 10.00%, 10.05%, 10.26% and 10.50% respectively on the back of considerable volumes changing hands. However, buying interest following the auction outcome saw yields dip to daily lows of 9.85%, 9.90%, 10.07% and 10.30% respectively on these maturities. In addition, a limited amount of activity was witnessed on the 15.07.2017, 01.04.2018, 15.08.2018 and 15.11.2018 maturities within the range of 8.35% to 8.50%, 9.20% to 9.30%, 9.45% to 9.55% and 9.50% to 9.60% respectively as well. This was ahead of today’s Treasury bond auctions where a total amount of Rs.15 billion will be on offer consisting of Rs.2 billion on a 04.10 year maturity of 15.12.2020, Rs.3 billion on a 10.04 year maturity of 01.06.2026 and Rs.5 billion each on a 14.03 year maturity of 15.05.2030 and a 29.01 year maturity of 01.03.2045. The said maturities recorded weighted averages of 9.79%, 9.35%, 11.46% and 11.73% respectively at their previous successful auctions held 23 December 2015, 27 November 2015, 8 January 2016 and 27 February 2015.

Meanwhile in money markets, the overnight repo rate continued to decrease to average at 6.51% as surplus liquidity in the system increased to Rs.62.11 billion. However, the attempt to drain out surplus liquidity on a term basis by the OMO department of Central Bank through term repo auction was not successful as only an amount of Rs.0.2 billion was accepted in successful bids at weighted averages of 6.50% for 11 days and 6.55% for 15 days against its total offered amount of Rs.20 billion. The overnight call money rate averaged at 6.80%.

Rupee remains stable

The USD/LKR rate on spot contracts remained steady closed the day Rs.143.95/10 yesterday. The total USD/LKR traded volume for the 26th of January 2016 was US $ 39.00 million.

Some of the forward USD/LKR rates that prevailed in the market were 1 Month - 144.60/75; 3 Months - 145.75/95 and 6 Months - 147.65/85.

Stock market remains lacklustre

(Reuters) - Sri Lankan stocks fell for a third straight session on Wednesday to a one-week closing low amid foreign outflow as investors worried over volatile global markets and rising returns on risk-free assets.

The main stock index ended 0.1%, or 6.41 points, lower at 6,316.46, the lowest close since Jan. 20.

“Even though market is still on a falling trend, there could be bounce back with the start of the earnings season and after the recent sharp fall,” said Dimantha Mathew, research manager at First Capital Equities Ltd.

The index has fallen 8.4% so far this year as foreign investors, unnerved by global concerns over China’s economy, have cut their exposure.

Foreign investors sold a net Rs. 414.2 million ($2.89 million) worth of shares on Wednesday, extending the year-to-date net foreign outflow to Rs. 2.69 billion worth of equities.

The day’s turnover was at Rs. 613.9 million, less than this year’s daily average of Rs. 781.2 million.

The central bank rejected all bids at an auction on Wednesday, signalling it would not tolerate much increase in yields after the yield on the 364-day t-bill jumped 32 basis points to a more than two-year high of 7.80% last week.

This move could help investors return to the market, analysts said.

The central bank, as expected, kept its key policy interest rates unchanged on Monday.

Shares of Ceylinco Insurance Plc fell 3.57% while Trans Asia Hotel Plc lost 4.92%. Dialog Axiata Plc dipped 0.98%.

Shares in conglomerate John Keells Holdings Plc dropped 0.13%, while Commercial Bank of Ceylon Plc , the country’s biggest listed lender, declined 1.09%.

Rupee steady amid importer dollar demand, outflows

Reuters - The Sri Lankan rupee closed unchanged on Wednesday amid importer dollar demand and foreign outflows from t-bonds, as banks were reluctant to trade below the 144.00 level desired by the central bank, dealers said.

“We saw foreign investors selling some bonds,” a dealer said asking not to be named. Another dealer said there was importer dollar demand and nobody was trading the spot rupee below 144.00.

The spot rupee ended flat at 144.00/20 per dollar.

The rupee forwards and swaps were actively traded on Wednesday, the second dealer said.

Dealers said the one-week forward, which acted as a proxy for the spot currency, ended steady at Rs. 144.30/50 per dollar.

The rupee is under pressure despite a 150-basis-point increase in commercial banks’ statutory reserve ratio from 16 January. The central bank kept its key policy interest rates unchanged on Monday.

Commercial banks parked Rs. 62.1 billion ($433.81 million) of surplus liquidity on Wednesday using the central bank’s deposit facility at 6%, official data showed.