Bond market gathers momentum during week

Monday, 3 September 2018 00:00 -     - {{hitsCtrl.values.hits}}

  • Inflation increases
  • Foreign inflow recorded for the first time in 18 weeks

By Wealth Trust Securities

The bond market opened the week ending 31 August on a bearish note, but reversed to a positive note towards the latter part of the week on the back of local and foreign buying interest as yields dipped across the yield curve. 

The liquid maturities of 01.05.20, three 2021’s (i.e. 01.03.21, 01.05.21 and 15.12.21), 15.07.23 and 01.08.24 were seen dipping to weekly lows of 9.30%, 9.50%, each, 9.60%, 9.91% and 10.01%, respectively, against its previous weeks closing levels of 9.25/35, 9.50/56, 9.52/58, 9.67/75, 9.95/99 and 10.08/12.  Furthermore, buying interest on the long end of the curve saw yields on the two 2028’s (i.e. 15.03.28 and 01.09.28) and 15.05.30 dip as well to weekly lows of 10.22%, 10.24% and 10.28%, respectively, against its last week closings of 10.30/40, 10.30/45 and 10.40/70. The positive sentiment was supported by the decrease in weighted averages at the weekly Treasury bill auction, where the 182- and 364-day maturities recorded drops of 6 and 1 basis points, respectively, to 8.03% and 8.99%. However, inflation for the month of August was seen increasing further to 5.9% on the basis of its point-to-point against its previous month 5.4%, while its annualised average remained steady at 5.6%. The foreign holding in rupee bonds recorded an inflow for the first time in 18 weeks to the tune of Rs. 578 million for the week ending 29 August. The daily secondary market Treasury bond/bill transacted volume through the first four days of the week averaged Rs. 7.33 billion

In money markets, the overnight call money and repo rates increased marginally to average at 7.84% and 7.83%, respectively, as the net surplus liquidity in the system fluctuated from a low of Rs. 6.58 billion to a high of Rs. 28.24 billion during the week. The Open Market Operations (OMO) Department drained out liquidity during the week on an overnight basis at weighted averages ranging from 7.56% to 7.95% in addition to mopping up liquidity on a permanent basis by way of term repo auctions at weighted averages ranging from 7.65% to 7.99% for durations ranging from two days to seven days. 

 Rupee depreciates    

In the Forex market, the rupee’s downward trend continued throughout the week as the USD/LKR rate on spot contracts were seen closing the week at Rs. 161.45/50 against its previous weeks closing level of Rs. 160.85/00 on the back of importer demand. 

The daily USD/LKR average traded volume for the first four days of the week stood at $ 60.14 million. 

Some of the forward dollar rates that prevailed in the market were 1 month - 162.20/40, 3 months - 163.80/00, and 6 months - 166.20/40.