Positive sentiment leads to bond yields decreasing for second consecutive week

By Wealth Trust Securities

The continuous positive sentiment in the bond market, backed by both local and foreign buying, resulted in a decline in yields during the week ending 2 September. 

Furthermore, for the first time in three weeks, the weighted averages at the weekly Treasury bill auction too were seen declining with the Central Bank of Sri Lanka accepting an amount exceeding the total offered amount of Rs. 26 billion. 

The decline in rates was further fueled by the sharp reduction in inflation for August on the point-to-point from 5.5% a month earlier to 4.0%, along with a turnaround of liquidity in the system from negative to positive. 

This in turn led to an extremely active secondary market where yields of the liquid maturities of 15.09.19, 01.03.21, 01.09.23, 01.08.24, two 2025’s (i.e. 15.03.25 and 01.08.25) and two 2026’s (i.e. 01.06.26 and 01.08.26) hit weekly lows of 11.25%, 11.40%, 11.90%, 11.94%, 12.03%, 12.05%, 12.08% and 12.06% respectively, against its previous week’s closing levels of  11.30/40, 11.65/70, 12.00/05, 12.05/10, 12.17/20, 12.18/22, 12.32/36 and 12.30/35. Buying interest was also witnessed among the 2018 maturities, 01.05.20, 01.10.22 and 15.05.30 with trades taking place at lows of 10.95%, 11.38%, 11.75% and 12.30% respectively.

Meanwhile, the foreign holding in Rupee bonds continued to increase, recording their fourth consecutive week of inflows. The week ending 1 September 2016 witnessed an inflow of Rs. 1.7 billion to record a total value of Rs. 304 billion. 

In the money market, the Open Market Operations (OMO) Department of the Central Bank of Sri Lanka avoided conducting overnight reverse repo auctions during the latter part of the week as the average net surplus liquidity in the system increased to Rs. 11.63 billion for the week when compared against its previous week’s average short of Rs.7.31 billion. The overnight call money and repo rates averaged 8.40% and 8.52% respectively during the week. 

Rupee appreciates during the week  

The rupee on the active spot next and one-week forward contracts appreciated during the week to close the week at Rs. 145.55/60 and Rs. 145.70/75 respectively against the previous week’s levels of Rs. 145.70/85 and Rs. 145.85/95. 

The daily USD/LKR average traded volume for the first four days of the week stood at $ 38.58 million. 

Some of forward dollar rates that prevailed in the market were one month - 146.35/50; three months - 147.90/10 and six months - 150.35/60.