Buyer’s market drives secondary market bond yields up

Tuesday, 26 February 2013 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities

The indecision prevailing in the market coupled with the weighted averages at the weekly Treasury bill auction remaining unchanged for the first time in 11 weeks saw yields in the secondary bond market increase during the week.

The two liquid five year maturities (i.e. 15 August 2018 and 1 April 2018) increased from weekly lows of 10.90% at the beginning of the week to a weekly high of 11.17% and closed the week at 11.12%-11.15%.

Meanwhile the Central Bank announced two Treasury bonds auctions, consisting maturities of 15 November 2018 and 1 October 2003 for amounts of Rs. 2 billion each to be conducted on 26 February. The weighted average at the previously auctioned 2018 bond stood at 10.73%.

However buying interest on the shorter leg of the yield curve was observed as some market participants were still continuing to reduce their duration by selling the longer leg of the curve and buying the shorter leg according to market sources.

In line with this, considerable volumes of the 2014 and 2015 bonds were seen changing hands within the range of 10.70% to 10.80%. In secondary market bills, durations centring on the 364 day bill were seen changing hands at levels of 11.05% to 11.11%.

Meanwhile in money markets, despite a total amount of Rs. 14 b being mopped up from the system for tenures ranging from 17 days to 35 days by way of outright sales of Treasury bills conducted by the Open Market Operations (OMO) department of Central bank, surplus liquidity remained high to close the week at Rs. 36.8 b.

Furthermore liquidity was drained out on a daily basis at a WAvg of 8.35% which led to overnight call money and repo rates remaining stable to average 9.44% and 8.59% respectively for the week.

Rupee fluctuations witnessed during the week

The rupee rate was seen depreciating to a low of Rs. 127.85 for the first time since 2 January 2013 during the early part of the week on the back of continued importer demand before it bounced back towards the later part of the week to weekly high of Rs. 126.80 on the back of selling on forward dollar contracts and closed the week at Rs. 127.45.

The total USD/LKR traded volume for the previous day (21 February 2013) stood at US $ 67.05 million. Given are some forward dollar rates that prevailed in the market: one month – 128.25; three months – 130.08; and six months – 132.93.