Money market rates drop to over 10-year lows as liquidity surges to 3-year high

Wednesday, 5 February 2014 00:01 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities As anticipated, liquidity in money markets surged to a three-year high of Rs. 107.16 billion yesterday following a Rs. 53.7 b bond maturity which fell due on 1 February 2014. In line with this and the non-collateralisation of CBSL’s Standing Deposit Rate (SDR) of 6.50% for excess funds deposited by market participants with effect from February saw interbank call money and Repo rates dip as much as 60 basis points (bp) and 27 bp respectively to average 6.86% and 6.41% (Levels last seen in August 2003) against its last week’s closing weighted averages (WAvgs) of 7.46% and 6.68%. This in turn saw continuous demand at the shorter end of the yield curve from durations ranging from one month bills to 18 month bonds.

However the yield curve continued to steepen, with yields increasing for a sixth consecutive day on the belly end of the yield curve mainly on the liquid two 2018 maturities (i.e. 1 April 2018 and 15 August 2018) on the back of selling pressure by foreign holders of rupee bonds and local participants ahead of this week’s Treasury bill auction due on Wednesday, with markets closed for trading on Tuesday in lieu of Independence day. Yields were seen hitting an intraday high of 9.40% each on these two maturities against its opening lows of 9.22/28 and 9.25/35 respectively. However, buying interest at these levels saw yields dip marginally once again to close the day at levels of 9.28/32 and 9.30/40 respectively. Wednesday’s Treasury bill auction will have on offer a total amount of Rs. 12 billion, consisting of Rs. 2 b each on the 91 day and 182 day maturities and Rs. 8 b on the 364 day maturity. Wavgs at last week’s auction resumed its downward trend after a lapse of one week with the 91 day and 182 day maturities dipping by two basis points (bp) each to 6.82% and 7.00% respectively while the 364 day dipped by one bp to 7.14%. Rupee appreciates marginally Meanwhile, in Forex markets, the rupee gained marginally to close the day at levels of 130.62/67 on the back of export conversions outweighing importer demand. The total USD/LKR traded volume for the previous day (31 January 2014) stood at US$ 43.57 million.

Some of the forward dollar rates that prevailed in the market were: one month – 131.06; three months -131.85; and six months – 133.15.