Secondary Bond market yields edge down on shorter tenors

• Foreign holdings in Rupee treasuries records net outflow for third consecutive week
• Money market liquidity reduces
• Rupee depreciates

By WealthTrust Securities

The Secondary Bond market started off last week positively. Yields declined during the first half of the week, reflecting renewed demand, particularly as concerns over the Israel-Iran conflict continued to fade. During the mid-week, yields were seen consolidating, with trading confined to a narrow band. However, at the end of the week, profit-taking pressure and the announcement by US President Trump regarding potential 20-25-30% tariffs added to market uncertainty surrounding the upcoming Reciprocal Tariff Suspension deadline on 9 July, weighing on bond market sentiment. Despite this, Secondary Bond market yields closed the week marginally lower on a week-on-week basis mainly on 2026-2028 tenors. Market activity and volumes overall seen at healthy levels, despite sporadic periods of low participation and temporary standstills, signalling a stable yet cautious trading environment.

Accordingly, the 15.02.28 and 15.10.28 maturities were seen trading within intraweek highs and lows of 8.80%-8.68% and 8.90%-8.80% respectively. The 15.10.29 and 15.12.29 maturities traded at the rates of 9.38%-9.34% and 9.45%-9.36% respectively. The 15.03.31 maturity traded within the range of 10.00%-9.95%. The 15.12.32 traded within the range of 10.36%-10.33%. The 01.11.33 maturity traded within the range of 10.65%-10.61% intraweek.

Meanwhile, weekly Treasury bill auction conducted last Wednesday was fully subscribed following two consecutive weeks of undersubscription. The auction raised the entire Rs 113 billion offer at the first phase in competitive bidding. The total bids received exceeded the offered amount by 1.57 times. Interestingly, the weighted average yield rate on the 182-day tenor increased by 03 basis point to 7.78%, marking the third consecutive weekly increase. However, the weighted average yield rate on the 91-day tenor and 364-day tenors remained steady at 7.55% and 7.94% respectively. This marks the fifth consecutive week that these two tenors have remained unchanged at these levels.

The foreign holding in Rupee Treasuries recorded a net outflow for the third consecutive week, amounting to Rs. 1.14 billion and as a result the total holding reduced to Rs. 93.92 billion as at 3 July.

The daily Secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged at Rs. 31.14 billion. 

In money market, the total outstanding liquidity surplus in the inter-bank money market reduced to Rs. 96.53 billion as at the week ending 4 July, from Rs. 128.78 billion recorded the previous week. The weighted average interest rates on call money and repo were recorded within the ranges of 7.74%-7.75% and 7.75%-7.76% respectively while the Central Bank of Sri Lanka’s (CBSL) holding of Government Securities was registered at Rs. 2,508.92 billion as at 4 July, unchanged against 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. 300.10/300.20 as against the previous week’s closing level of Rs. 299.88/299.95, subsequent to trading at a high of Rs. 299.85 and a low of Rs. 300.45.

The daily USD/LKR average traded volume for the first four trading days of the week stood at $ 65.89 million.

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