Secondary market Treasury yields continue to head south

Monday, 30 September 2013 01:08 -     - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The bullish sentiment created following the NSB dollar bond issue continued for a third consecutive week as the secondary market yields took a parallel shift downwards. The two liquid five year maturity treasury bonds (i.e. 01 April 2018 and 15 August 2018) hit one month lows of 11.68% and 11.70% respectively against the previous week’s closing levels of 11.84/87 and 11.86/92. Furthermore, yields of the two year maturities decreased to 11.03% while the three and a half year maturity bonds traded within a range of 11.48% to 11.55%, with activity remaining high.  In addition other maturities such as the 1 April 2014 decreased to weekly lows of 9.95%. With regards to treasury bills, considerable volumes of late January 2014, May 2014, June 2014 and August 2014, securities changed hands at levels of 9.30% to 9.40%, 10.00% to 10.15%, 10.20% to 10.30% and 10.35% to 10.45%, with a fair demand for secondary market bills. However, despite expectations of a drop in yields at the weekly Treasury bill auction, the weighted average of the 364-day maturity remained at 10.57%, while the weighted averages of the 91-day and 182-day bills dipped by one basis point each to 8.60% and 9.63% respectively. Despite there being no change in the rate, an additional amount of Rs. 5.8 billion of the 364-day bills were accepted over and above offered amount of Rs. 8 billion. During the latter part of the week, the market experienced a marginal increase in rates which was primarily due to profit taking. Liquidity decreased during the week Meanwhile, liquidity in the money market dipped towards the latter part to close the week at Rs. 24.2 billion, after reaching a 29-month high of Rs. 88 billion at the beginning of the week. The dip in liquidity was mainly attributed to the continuous efforts of the Open Market Operations (OMO) Department of the Central Bank in its mopping up process by way of term repo auctions and outright sales of its Treasury bill holdings. The seven day repo auctions drained out liquidity at a steady weighted average of 7.86% to 7.96%, while an amount of Rs. 10.50 billion was mopped up by way of outright Treasury bill sales consisting of 18 to 64-day maturities weighted averages ranging from 8.04% to 8.50%. However it refrained from conducting overnight auctions throughout the week resulting in a large portion of daily surplus liquidity being deposited at CBSL’s Repo window of 7.00%. This in turn helped overnight call money and repo rates to remain steady throughout the week to average 8.42% and 8.04% respectively. Rupee appreciates to a one month high The rupee on spot contracts was seen closing the week at levels of Rs. 132.00/05 in comparison to its previous week’s close of Rs. 132.15/20 on the back of selling interest by banks, lesser importer demand and thin volumes. It was seen appreciating below Rs. 132.00 during the week for the first time in one month as well. The daily USD/LKR average traded volume for the first four days of this week stood at $ 42.46 million. Some of the forward dollar rates that prevailed in the market were 1-Month: Rs. 132.88, 3-Months: Rs. 134.49 and 6-Months: Rs. 137.08.