Yield curve reflects parallel shift downwards

• Secondary market bond yields dip to over 19 month lows
• 364 day bill weighted average drops to a 17 month low
• Call money and repo rates drop to over a 17 month low
• CBSL bill stock drops below Rs. 100 billion
• Foreign holding in rupee bonds increases once again

By Wealth Trust Securities

A renewed positive sentiment in the secondary bond market backed solely by foreign buying interest resulted in a parallel shift downwards of the overall yields curve for the week ending 15 September. This trend was further supported by the outcome of the weekly Treasury bill auction where the weighted average on the 364 day maturity dipped by 38 basis points to a seventeen month low of 9.20% while the 182 day maturity dipped by 18 basis points to 9.05%.

This intern saw activity in the secondary bond market increasing with yields of the liquid maturities of three 2021’s (i.e. 01.03.21, 01.08.21 and 15.12.21), 15.05.23 and 01.08.24 hitting over 19 months lows of 9.94%, 9.98%, 9.93%, 10.12% and 10.08% respectively against its previous weeks closing levels of 10.25/30, 10.35/40, 10.27/32, 10.42/47 and 10.50/65. Buying interest was also witnessed on the long term maturities of 01.09.28 and 15.05.30 with its yields dipping to weekly lows of 10.40% and 10.64% respectively while on the short end to the belly end of the curve, the 15.11.18, 15.09.19, 01.05.20, 01.07.22, 01.08.25 and 01.08.26 maturities were traded at lows of 9.25%, 9.39%, 9.60%, 10.00%, 10.25% and 10.16% respectively.

The foreign holding in Rupee bonds was seen increasing once again to record an inflow of Rs. 2.8 billion for the week ending 13 September to record Rs. 269.99 billion in total. The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged Rs. 17.25 billion.

In money markets, the overnight call money and repo rate was seen reducing to over a seventeen month low of 7.95% and 7.96% respectively during the week, a level last seen in March 2016. Furthermore, the Central Bank of Sri Lanka’s Treasury bill holding was seen dipping below Rs. 100 billion during the week to record Rs. 88.08 billion in book value terms for the 15 September.

The Open Market Operations (OMO) Department continued to drain out excess liquidity by way of auctions for outright sales of Treasury bills. The auctions drained an amount of Rs. 3.1 billion in total at weighted average of 8.38% for 35 days and 8.40% for 42 days as the average net surplus liquidity in the system stood at Rs. 29.22 billion during the week. In addition it drained out liquidity throughout the week on an overnight basis at weighted averages of 7.27% as well. 

Depreciating trend in rupee continues

In the Forex market, the USD/LKR rate on the spot rate depreciated further during the week to close the week at Rs. 152.82/92 against its previous week’s closing levels of Rs. 152.75/85 on the back of importer demand outpacing inward remittances and foreign buying in LKR bonds.

The daily USD/LKR average traded volume for the four days of the week stood at $ 70.1 million.

Some of the forward dollar rates that prevailed in the market were one month – 153.55/65; three months – 155.10/20 and six months – 157.05/15.