Shorter leg of the yield curve continues bull run ahead of weekly auction

Wednesday, 25 September 2013 00:20 -     - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The shorter leg of yield curve remained bullish yesterday, ahead of this week’s Treasury bill auction due today. At today’s auction, Rs. 0.5 billion each will be on offer on the 91 day and 182 day maturities while Rs. 8 b will be offered on the 364 day maturity. At last week’s auction all three weighted averages (WAvg) remained steady for a fourth consecutive week at 8.61%, 9.64% and 10.57% respectively. Once again activity on the shorter end of the yield curve continued to surround duration nearing the 91 day, 182 day and the 364 day maturities as January 2014 bills were seen changing hands within the range of 9.10% to 9.40%, April 2014 within the range of 10.00% to 10.10%, June 2014 within 10.30% to 10.40% and August 2014 within 10.45% to 10.48% on the back of considerable volumes. The prevailing high liquidity, lesser foreign selling interest on rupee bonds coupled with the stable exchange rate was seen as the main drivers behind this bull run. The positive sentiment on the shorter leg of the curve reflected positively on the rest of the yield curve as well, with the two year maturity closing the day lower at 11.07/12, the three year maturity at 11.25/30 while the liquid two five year maturities (i.e. 1 April 2018 and 15 August 2018) closed the day marginally lower as well at 11.82/84 and 11.86/89 respectively subsequent to hitting daily lows of 11.82% and 11.88% a highs of 11.85% and 11.89%. The overnight call money and repo rates remained steady yesterday to average 8.42% and 8.09% respectively as surplus liquidity remained high at Rs. 59.32 b with Rs. 56.44 b been deposited at CBSL’s Repo window of 7%. In an effort to mop up liquidity on a more permanent basis the Open Market Operations (OMO) department of Central Bank mopped up an amount of Rs. 2.88 b for a period of seven days by way of a Repo auction at weighted average of 7.96%. Furthermore it was seen conducting four auctions for outright sales of Treasury bills for a total amount of Rs. 14 b for durations of 23 days, 44 days, 58 days and 65 days. However, only an amount of Rs. 5 b in total was drained out through this method for durations of 23 days and 44 days at WAvgs of 8.15% and 8.33% respectively, value dated today while bids for the remaining two durations were rejected. Rupee loses ground marginally The USD/LKR rate depreciated marginally to Rs. 132.15/18 yesterday against its previous day’s close of Rs. 132.08/12 on the back of importer demand outweighing export conversions. The total USD/LKR traded volume for the previous day (23 September 2013) stood at US$ 60.15 million. Some of the forward dollar rates that prevailed in the market were one month – 132.99; three months – 134.63; and six months – 137.22.