Secondary Bond market yields edge down on shorter tenors

• Foreign buying continues for third consecutive week 
• Rs. 167.5 b T-bill auction fully subscribed; Rates continue to decline
• Money market liquidity reduces
• Rupee steadily appreciates

By WealthTrust Securities

The Secondary Bond market last week was initially characterised by yields moving mostly sideways, fluctuating within a narrow band. This period of consolidation followed the bull run triggered by the policy rate cut announced on 22 May. Sporadic bouts of profit-taking pressure were witnessed; however, they were curtailed by strong buying interest at the higher levels. Two-way quotes closed lower, with yields trending down mainly on shorter tenor bonds. This positive sentiment was supported by the midweek Treasury bill auction, where the weighted averages of longer-tenor securities declined, reinforcing the downward pressure on yields.

The 15.03.28 maturity traded down from an intraweek high of 8.85% to a low of 8.70%. The 01.05.28 and 01.07.28 maturities were seen transacting at the rates of 8.85% and 8.92%-8.72%. The 15.10.28 maturity traded at 9.00%-8.85%. The 15.06.29, 15.09.29, and 15.12.29 maturities were seen trading within the ranges of 9.55%-9.40%, 9.62%-9.45%, and 9.63%-9.50%. The 15.12.32 maturity traded between 10.30%-10.20%. The 15.09.34 maturity traded within the range of 10.49%-10.40% and the 15.03.35 maturity between 10.50-10.52%. 

The weekly Treasury bill auction conducted last Wednesday (4) was fully subscribed. The entire Rs. 167.5 billion on offer successfully raised in the first phase in competitive bidding. The total bids received exceeded the offered amount by 1.99 times. 

The weighted average yield rate on the 182-day tenor declined by four basis points to 7.77%, and the 364-day tenor also fell by four basis points to 7.94%. However, the weighted average yield rate on the 91-day tenor remained steady at 7.55%. An additional amount of Rs. 16.75 billion, being the maximum aggregate amount offered, was raised at the second phase across all three maturities at the weighted averages determined in the first phase.

Meanwhile, foreign holdings in Rupee treasuries recorded a net inflow for the third consecutive week, amounting to Rs. 2.74 billion and, as a result, total holdings increased to Rs. 95.45 billion as at 29 May.

The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged at Rs. 37.41 billion. 

The total outstanding liquidity surplus in the inter-bank money market decreased to Rs. 173.74 billion as at the week ending 6 June from Rs. 203.79 billion recorded the previous week. The weighted average interest rates on call money and repo were recorded within the ranges of 7.71%-7.75% and 7.73%-7.76%, respectively. 

The Central Bank of Sri Lanka’s (CBSL) holding of Government Securities was registered at Rs. 2,508.92 billion as at 6 June, a marginal decrease over the previous week’s closing level.

Forex market

In the Forex market, the USD/LKR rate on spot contracts was seen appreciating to close the week at Rs. 299.10/299.20 as against the previous week’s closing level of Rs. 299.50/299.60, and subsequent to trading at a high of Rs. 299.13 and a low of Rs. 299.60.

The daily USD/LKR average traded volume for the first four trading days of the week stood at $ 70.25 million. 

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