Bond yields increase for the first time in five weeks

• Foreign buying continues

By Wealth Trust Securities

The secondary bond market saw yields increase during the week ending 19 July 2019, reversing four consecutive weeks of declines. This was despite the weighted averages at the weekly Treasury bill auctions decreasing across the board for a fourth consecutive week and foreign buying continuing for a second consecutive week. 

The activity in the market moderated during the week in comparison to the previous weeks, centring on the short end to the belly end of the yield curve which consist of the liquid maturities of 2021’s (i.e. 01.03.21, 01.05.21, 01.08.21, 15.10.21 and 15.12.21), 2023’s (15.03.23 and 15.07.23), 2024’s (15.03.24 and 15.06.24), 01.08.25, 15.01.27 and two 2028’s (i.e. 15.03.28 and 01.09.28). Its yields were seen hitting weekly highs of 8.75%, 8.80%, 8.90%, 8.90%, 8.95%, 9.50%, 9.61%, 9.80%, 9.87%, 10.00%, 10.10%, 10.10% and 10.08% respectively against its previous weeks closing of 8.55/65, 8.60/70, 8.60/70, 8.70/75, 8.70/80, 9.45/55, 9.52/55, 9.68/75, 9.72/77, 9.93/00, 9.98/02, 10.00/10 and 10.02/10. This led to a marginal shift upwards of the overall yield curve. 

The increase in the foreign holding was recorded at Rs. 1.22 billion for the week ending 17 July 2019. 

The daily secondary market Treasury bond/bills transacted volume for the first three days of the week averaged Rs. 5.18 billion. 

In money markets, despite the net overnight liquidity surplus recording an average of Rs. 30.34 billion for the week, the OMO (Open Market Operation) Department of the Central Bank of Sri Lanka was seen refraining from conducting any auctions to drain out liquidity towards the latter part of the week. It drained out liquidity during the early part of the week on an overnight basis at weighted average yields ranging from 7.71% to 7.79%. Overnight call money and repo rates averaged 7.83% and 7.88% respectively for the week.  

Rupee depreciates during the week 

The USD/LKR rate on spot contracts depreciated during the week to close the week at levels of Rs. 175.80/85 against its previous weeks closing level of Rs. 175.45/55 on the back of buying interest by banks and importer demand. 

The daily USD/LKR average traded volume for the first three days of the week stood at $ 84.26 million.

Some of the forward dollar rates that prevailed in the market were one month – 176.40/60; three months – 177.75/95 and six months – 179.75/05.