Rupee and 5-year bond yield gains amid liquidity fluctuations

Monday, 9 September 2013 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The overnight surplus liquidity in money markets witnessed some fluctuations for the week ending 6 September, as it decreased from a weekly high of Rs. 31.48 during the start of the week to a low of Rs. 13.25 billion by the later part of the week. A dollar inflow into the system was seen as the reason behind the increase in liquidity last Friday (30 August) while continuous Open Market Operations (OMO) throughout the week in order to mop up the build-up in liquidity was seen as the reason behind the decline. The OMO department of Central Bank was seen conducting overnight/term repo auctions and outright sales of Treasury bills in order to mop up liquidity The weighted average (WAvg) on the overnight repo auction continued to decrease from 7.30% at the beginning of the week to 7.16% by the latter part of the week while the WAvg on the term auction remained steady at 7.95%. Furthermore the Central Bank sold down its bill holding, amounting to Rs. 3 billion with maturities of 10 and 14 days at WAvg’s of 7.99% and 8.05% respectively. This intern kept overnight call money and repo rates steady throughout the week to average 8.67% and 8.13% respectively.

Meanwhile at the weekly Treasury bill auction, WAvg’s remained unchanged against its previous week’s levels for the first time in 28 weeks at 8.61%, 9.64% and 10.56% respectively on the 91-day, 182-day and 364-day maturities. Following the auction, demand for secondary market bills was evident as March 2014 maturities were traded within the range of 9.95% to 10.10%, May 2014 maturities within the range of 10.40% to 10.48% and maturities nearing the 364-day bill within the range of 10.45% to 10.55%. However, contradictory to the movement on primary and secondary market bills, yields on secondary market bonds increased during the week, mainly on the liquid two five-year maturities (i.e. 1 April 2018 and 15 August 2018) by 23 and 20 basis points each to weekly highs of 11.98% and 12.00% respectively against its weekly lows of 11.75% and 11.80%. In addition, considerable volumes were seen changing hands on two year maturities as well within the range of 11.15% to 11.25% during the week reflecting a drop from its previous week’s levels. Rupee stabilises during the week Following a dollar in flow in to the system by way of a Sri Lankan Development Bond to the tune of $ 209 million saw the USD/LKR rate on spot next contracts stabilise during the week within the range of Rs. 133.05/15. However activity was seen shifting towards spot next /next contracts (four working days ahead) towards the latter part of the week as it closed the week at levels of Rs. 133.15/20. The total USD/LKR traded volume for the first four days of this week stood at $ 30.43 million. Some of the forward dollar rates that prevailed in the market were 1-Month: Rs. 133.90, 3-Months: Rs. 135.73 and 6-Months: Rs. 138.30.