Yield curve shifts downward for second consecutive week

• Foreign selling in rupee bonds continue
• Liquidity improves
  
   

By Wealth Trust Securities

The drop in the weekly Treasury bill weighted averages, coupled with the bond purchases by the Open Market Operations (OMO) department of Central Bank, reflected positively on the trading sentiment in the secondary bond market during the week ending 18 October.  

At the weekly bill sale, the market favorite 364 day bill weighted average decreased for the first time in seven weeks by 06 basis points to 8.35% while the weighted averages on the 182 day and 91 day maturities dipped by 04 and 02 basis points respectively to 7.69% and 7.56%. 

At the auction to purchase Treasury bonds, the Open Market Operations (OMO) department of Central Bank bought back in total an amount of Rs. 11.93 billion of the Treasury bond maturities of 01.03.21, 15.10.21 and 15.12.21 at weighted average rates of 8.55%, 8.65% and 8.68% respectively.

In the secondary bond market, the yields of the liquid maturities of two 2023’s (i.e 15.07.23 & 15.12.23) and three 2024’s (i.e. 15.03.24, 15.06.24 & 15.09.24) were seen decreasing to weekly lows of 9.55%, 9.66%, 9.94% each and 9.95% respectively against its previous weeks closing levels of 9.65/70, 9.75/85, 10.05/12 each and 10.10/13. In addition, the 2021’s (i.e. 01.03.21, 01.05.21, 15.10.21 &15.12.21), 2022’s (i.e. 01.07.22 & 01.10.22), 15.10.25, 15.06.27, 01.09.28, 01.05.29 and 15.09.34 traded at levels of 8.56% to 8.70%, 9.12% to 9.16%, 10.06% to 10.11%, 10.28% to 10.32%, 10.44% to 10.53%, 10.42% and 10.68% to 10.70% respectively as well.  

However, the foreign component in rupee bonds was seen declining for a second consecutive week to record an outflow of Rs. 0.73 billion for the week ending 16 October.

The daily secondary market Treasury bond/bills transacted volume for the first four days of the week averaged Rs. 11.65 billion. 

 

Meanwhile in money markets, the overnight call money and repo rates averaged 7.53% and 7.56% respectively for the week as the average overnight liquidity in the system dipped to a surplus of Rs. 5.03 billion for the week against Rs. 16.67 billion the previous week. Nevertheless, the overall net deficit in the system improved to record a deficit of Rs. 2.05 billion against its previous week’s deficit of Rs. 12.75 billion. The Open Market Operations (OMO) Department of Central Bank injected liquidity during the week on an overnight and seven day reverse repo auctions at weighted average yields ranging from 7.59% to 7.67%.

Rupee losses 

In the forex market, the rupee on its spot contacts were seen depreciating during the week to close the week at levels of Rs. 181.95/10 against its previous weeks closing levels of Rs. 180.65/75 on the back of buying interest by banks.

The daily USD/LKR average traded volume for the first four days of the week stood at $ 82.15 million.

Some forward dollar rates that prevailed in the market were: one month – 182.55/75; three months – 183.80/10; six months – 185.45/85.