Secondary Bond yields continue to see-saw amid conflicting signals on ME tensions

• Monetary Policy Review No. 02 for 2026 due today
• Rs. 80 b T-Bill Auction in focus

By Wealth Trust Securities 

Secondary market Bond yields yesterday initially traded downward, responding to a sharp softening in global oil prices. This followed news that the US had postponed planned strikes on Iranian energy infrastructure for five days, alongside indications of constructive diplomatic engagement, which temporarily eased geopolitical concerns.

However, this proved short-lived. Oil prices subsequently partially retraced, though not to earlier highs, as Iran pushed back against US claims, denying any talks to end the conflict. This reversal in sentiment filtered into the bond market, with yields moving back higher as uncertainty surrounding the geopolitical outlook intensified.

At the same time, technical factors added further upward pressure on yields. The initial decline prompted profit-taking activity, with some market participants using the brief rally as an opportunity, thereby accelerating the upward adjustment in yields.

Into the close, sentiment remained cautious ahead of the Monetary Policy Announcement due today. As a result, despite the fluctuations secondary bond market two-way quotes closed broadly steady.

Accordingly, the 15.02.28 maturity was seen trading at the rate of 9.50%. The 15.06.29, 15.09.29 and 15.12.29 maturities were seen initially touching intraday lows of 9.85%, 9.75% and 9.75% respectively before moving back up to intraday highs of 9.85%, 9.95% and 9.95%. The 01.03.30 maturity traded up from an intraday low of 9.75%-9.95%. The 15.12.32 maturity traded within the range of 10.60%-10.85%. The 01.06.33 maturity traded at the rate of 10.90%.

The announcement for the 02nd Monetary Policy Review for 2026 is due to be announced today at 7.30 am.

To recap: At the 01st Monetary Policy Review for 2026 announced 28th January, the Central Bank of Sri Lanka (CBSL) decided to hold the Overnight Policy Rate at 7.75%. This marked the fourth consecutive monetary policy decision to keep rates on hold. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), which are linked to OPR with pre-determined margins of ± 50 basis points, also remained unchanged at 7.25% and 8.25%, respectively. The statutory reserve rate was also left unchanged at 2%.

These developments come ahead of the weekly Treasury Bill auction scheduled for today which will have on offer a total amount of Rs. 80 billion. The auction will be comprising of Rs. 20 billion in 91-day Bills, Rs. 25 billion in 182-day Bills, and Rs. 35 billion in 364-day Bills. The offered amount is below the maturing volume, which is estimated at around Rs. 87.17 billion.

For context, the weekly Treasury bill auction conducted last Wednesday (18) saw weighted average yields remain unchanged across the board. Accordingly, the rate on the 91-day Bill was recorded at 7.61%, 182-day Bill at 7.91% and the 364-day Bill at 8.23%. However, the auction was undersubscribed at the first phase in competitive bidding as it raised only Rs. 60.79 billion, or 50.66% of the total offered amount of Rs. 120 billion. The bid-to-cover ratio stood at 1.73 times.

The total secondary market Treasury Bond/Bill transacted volume for 23 March was Rs. 16.93 billion.

In money markets, the net liquidity surplus was recorded at Rs. 241.71 billion yesterday. The Domestic Operations Department (DOD) of the Central Bank of Sri Lanka was seen draining out an amount of Rs. 100 billion by way of overnight Repo auction at a weighted average rate of 7.61% while an amount of Rs. 141.71 billion was deposited at Central Bank’s SDFR (Standing Deposit Facility Rate) of 7.25%.

The weighted average rates on overnight call money and Repo stood at 7.59% and 7.62% respectively.

Forex market 

The USD/LKR rate on spot contracts was seen depreciating, to close the day at Rs. 314.00/314.40 as against the previous day’s closing level of Rs. 313.00/314.00. The total USD/LKR traded volume for 23rd March was $ 71.25 million. 

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