Secondary Bond market yields close steady

• Foreign buying in Rupee treasuries continues for fourth straight week 
• Primary auctions fully subscribed
• Money market liquidity increases
• Rupee depreciates 

By WealthTrust Securities

The Secondary Bond market initially kicked off last week with yields trading sideways, fluctuating within a narrow band. Market activity and transaction volumes were seen at subdued levels as market participants adopted a watchful stance ahead of the Treasury bond auction. 

However, as the bond auction was underway last Thursday (12), concentrated buying interest was observed particularly on the popular 2029 tenors, driving yields lower in that segment. The rest of the yield curve remained broadly steady. Despite this, profit-taking pressure in the latter part of the day — following the auction results — led to a partial reversal of earlier gains. Market activity and transaction volumes were seen increasing to healthy levels.

At the close of the week, yields picked up notably. This came against the backdrop of the news of an escalation in hostilities between Israel and Iran. The uptick in rates were to a great extent curtailed by renewed buying interest kicking in at the elevated levels. As a result, despite the fluctuations, Secondary Bond market two-way quotes closed broadly steady week-on-week apart from the 2032 tenors, which saw rates notch up.

The 15.12.26 maturity was seen trading at the rates of 7.98%-8.00%. The 15.03.28 and 01.05.28 maturities were seen trading at the rates of 8.70% and 8.72%-8.75%, respectively. 

The dynamic sentiment and the corresponding fluctuation were most pronounced on the 2029 tenors. For example, the 15.12.29 maturity touched an intraweek low of 9.42% from a high of 9.50% at the start of the week, during the 2029-specific rally as the T-bond auction was underway. This was subsequently reversed as profit-taking pressure kicked in and the Israel-Iran news broke, which led to the yield on the maturity bouncing back to a high of 9.55%. However, renewed buying interest brought yields back under control, with the 15.12.29 maturity recovering to trade at 9.48% last at the close of the week. The 15.09.29 maturity traded within the range of 9.40%-9.50%.

The 15.03.31 maturity was seen trading at the rate of 9.90%. The 15.12.32 maturity was seen trading at the rates of 10.30%-10.33%. The 15.09.34 maturity was seen changing hands at the levels of 10.45% to 10.50%.

The weekly Treasury bill auction conducted last Wednesday (11) was fully subscribed. The entire Rs. 175 billion on offer was successfully raised in the first phase in competitive bidding. The total bids received exceeded the offered amount by 1.94 times. The weighted average rates remained virtually unchanged. Accordingly, the weighted average yield rate on only the 182-day tenor declined marginally by one basis point to 7.72%. The weighted average yield rate on the 91-day tenor and 364-day tenors remained steady at 7.55% and 7.94%, respectively.

This was followed by a round of Treasury bond auctions held on Thursday (12). The round of auctions was also fully subscribed, with the entire Rs. 111 billion total offered amount successfully raised at the first phase in competitive bidding and total bids exceeding the offer by 2.40 times. 

The shorter tenor 15.10.29 maturity (10.35% coupon) recorded a bullish outcome and raised the full Rs. 41 billion maturity-wise offered amount in the first phase at a weighted average yield of 9.41%, coming in below initial market expectations.

A longer tenor 15.12.32 maturity (11.50% coupon) also raised the entire maturity-wise offered amount of Rs. 70 billion at a yield of 9.47%. However, this was slightly above market expectations as the maturity was seen quoted at the rate of 10.15%/10.25% just prior to the auction.

Meanwhile, foreign holdings in Rupee treasuries recorded a net inflow for the fourth consecutive week, amounting to Rs. 2.62 billion and, as a result, the total holding increased to Rs. 98.07 billion as at 12 June.

The daily secondary market Treasury bond/bill transacted volumes for the first three days of the week averaged at Rs. 43.06 billion. 

The total outstanding liquidity surplus in the inter-bank money market increased to Rs. 187.53 billion as at the week ending 13 June, from Rs. 173.74 billion recorded the previous week. The weighted average interest rates on call money and repo were recorded within the ranges of 7.68%-7.70% and 7.72%, respectively. 

The Central Bank of Sri Lanka’s (CBSL) holding of Government Securities was registered at Rs. 2,508.92 billion as at 13 June, unchanged from the previous week’s closing level.

Forex market

In the Forex market, the USD/LKR rate on spot contracts was seen depreciating to close the week at Rs. 299.70/300.00 as against the previous week’s closing level of Rs. 299.10/299.20 and subsequent to trading at a high of Rs. 298.90 and a low of Rs. 299.65.

The daily USD/LKR average traded volume for the first three trading days of the week stood at $ 70.38 million.

(References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)