Yield curve continues parallel shift downwards for a sixth consecutive week
Monday, 21 October 2013 00:00
By Wealth Trust Securities
Driven by the 50 basis point cut in policy rates, the overall yield curve witnessed a parallel shift downwards for the sixth consecutive week, sending bond prices soaring (yields tumbling) and keeping markets extremely active during the short week ending 17 October. Secondary bond market trading focused mainly on two maturities, the 1 January 2017 and 1 April 2018 as its yields were seen dipping as much as 35 basis points (bp) and 30 bp respectively to register a four month low against its weeks opening levels of 11.20% and 11.35%.
In addition, a limited amount of activity was witnessed of the 3-year maturities within the range of 10.55% to 10.85% while the two year bonds were seen changing hands within 10.35% to 10.75%. Meanwhile, demand for Treasury bills saw January 2014 bills change hands within the range of 8.25% to 8.75%, May 2014 within the range of 9.20% to 9.80%, June 2014 within 9.55% to 10.10% and the 364-day bill at levels of 10.10% to 10.45%.
Liquidity increased during the week
Meanwhile, liquidity in the money market increased towards the latter part to close the week at Rs. 36.27 billion from Rs. 13.53 billion. The Open Market Operations (OMO) Department of the Central Bank was seen mopping up liquidity by way of a seven-day term repo auctions at a weighted average of 7.97% on the pre rate cut period and within the range of 7.46% to 7.49% after the rate cut. It refrained from conducting overnight auctions throughout the week resulting in a considerable portion of daily surplus liquidity being deposited at CBSL’s Repo window at 7.00%.
This coupled with the policy rate reduction helped overnight call money and repo rates to remain steady throughout the week to average 7.98% and 7.25% respectively.
Rupee fluctuates during the week
The rupee was seen fluctuating within a weekly high of Rs. 130.83 and a weekly low of Rs. 131.10. The gain was attributed to selling interest on forward dollar contracts while the drop was attributed to importer demand. The daily average USD/LKR traded volume for the first two days of the week was at $ 49.49 million.
Some of the forward dollar rates that prevailed in the market last week were 1-Month: Rs. 131.83, 3-Months: Rs. 133.43 and 6-Months: Rs. 135.88.