Parallel shift up on the short end to belly end of the yield curve

• Activity moderates during the week 
• Foreign holding in rupee bonds decrease further 

By Wealth Trust Securities

Selling interest on the short end to the belly end of the curve saw yields on the liquid maturities of 01.08.21, 01.10.22, 15.07.23, two 2024’s (i.e. 15.03.24 and 15.06.24), 01.08.26 and 15.01.27 increasing to hit intraweek highs of 8.90%, 9.30%, 9.90%, 10.00%, 10.05%, 10.10% and 10.11% respectively during the week against its previous week closing levels of 8.65/75, 9.15/20, 9.57/60, 9.78/80, 9.78/82, 9.92/00 and 9.97/03. However, buying interest at these levels curtailed any further upward movement while the overall activity in the secondary bond market moderated during the week. 

Meanwhile, the weighted averages of the weekly Treasury bill auction decreased across the board by 21, 19 and 09 basis points respectively on the 91 day, 182 day and 364 day maturities. 

The market also witnessed continued foreign selling interest of rupee bonds with an outflow of Rs. 12.29 billion for the week ending 28 August, recording a total outflow of Rs. 25.16 billion over the past two weeks. Furthermore, the Point to Point inflation for the month of August increased for the first time in three months to register 3.4% against its 3.3% recorded in July while annual average decreased to 3.8%. 

The daily secondary market Treasury bond/bills transacted volume for the first four days of the week averaged Rs. 7.31 billion. 

In money markets, the net overnight liquidity position in the system was seen decreasing considerably to a deficit of Rs. 18.49 billion on Friday against its previous week average net surplus of Rs. 20.00 billion. The total liquidity in the system decreased to a deficit of Rs. 24.24 billion against its previous weeks of Rs. 9.15 billion as well. 

The overnight call money and repo rates averaged 7.34% and 7.41% respectively for the week as the Open Market Operations (OMO) Department of Central Bank injected liquidity during the latter part of the week on an overnight basis at weighted average yields ranging from 7.35% to 7.42%. In addition, it injected funds by way of outright purchases of Treasury Bills for durations ranging from 312 to 326 days at weighted averages ranging from 7.89% to 7.94% as well. 

Rupee closes stronger 

In the Forex market, the Rupee on its spot contracts were seen closing the week stronger at Rs. 179.00/30 against its previous weeks closing level of Rs. 179.70/00, subsequent to trading within the range of Rs. 179.00 to Rs. 181.10. 

The daily USD/LKR average traded volume for the first four days of the week stood at $ 71.49 million.  

Given are some forward dollar rates that prevailed in the market:

1 month – 179.60/90

3 months – 180.60/00

6 months – 182.20/60

Correction: In the 29 August report, the rupee low was reported incorrectly. The Interbank USD/LKR rate on spot contracts was seen hitting an intraday low of Rs. 181.10 on 28 August on the back of continued buying interest by banks before bouncing back to close the day at Rs. 180.30/60 against its previous day’s closing levels of Rs. 180.20/60.