Hold of policy rates unchanged sees secondary market bond yield jump
Tuesday, 10 December 2013 00:19
The secondary markets for Treasury bills and bonds started the week with the announcement of the December monetary policy decision yesterday, which saw the Central Bank hold its policy rates at 6.50% and 8.50% for a second consecutive month against market expectations.
This in turn saw secondary market bond yields increasing considerably during early hours of trading mainly on the liquid two 2018 maturities (i.e. 1 April 2018 and 15 August 2018) to a five-day high of 10.80% and 10.85% respectively in comparison to their respective Friday’s closing levels, Wealth Trust Securities said.
However, buying interest at these levels saw yields close the day marginally lower once again at levels of 10.68/72 and 10.74/78 respectively.
The overall yield curve reflected a parallel shift upwards with activity remaining high once again while yields on the 1 April 2016 maturity was seen increasing to levels of 9.95/00 and the 1 January 2017 to 10.20/25. Furthermore the pass-through effect was evident on secondary market bills as well with the 364 day bill increasing to levels of 9.20/25 against its Friday’s closing of 9.00/10.
Meanwhile in money markets, overnight call money and repo rates remained steady to average 7.76% and 7.04% respectively as surplus liquidity in money markets increased to Rs. 33.70 b yesterday. The Open Market Operations (OMO) department of Central Bank was seen mopping up Rs. 17.50 billion on a four day basis at a weighted average of 7.31% while further an amount of Rs. 16.20 b was deposited at its widow rate of 6.50%.
Furthermore, it carried out two medium term repo auctions as well, totaling Rs. 15 b yesterday for durations of 31 days and 62 days. However, only an amount of Rs. 5 b in total was drained out through this method at WAvgs of 7.60% and 7.65% respectively, value dated today.
The continued seasonal remittances coupled with moderate importer demand saw the rupee appreciating further to levels of 130.73 yesterday. The total USD/LKR traded volume for the previous day (6 December 2013) stood at US$ 51.85 million. Given are some forward dollar rates that prevailed in the market: one month – 131.54; three months – 132.79; and six months – 134.76.