Secondary Bond yields edge up amid subdued activity

• Rs. 90 T-Bill auction in focus

By Wealth Trust Securities 

The secondary Bond market commenced the week on a bearish note, with yields trending higher, extending the upward momentum observed late last week. 

Selling pressure was evident, reflecting heightened sensitivity to inflation expectations and the near-term rate outlook. Market sentiment remained weighed down by intensifying external pressures, particularly the escalation in Middle East tensions and the sharp rise in global oil prices.  Brent crude surged above $ 115 per barrel, prompting concerns over prolonged supply disruptions and renewed imported inflation pressure.

Activity levels were relatively subdued, as investors remained cautious and largely on the sidelines awaiting clearer direction on global developments. However, transaction volumes were supported by a few block trades. While some tactical buying interest emerged at elevated yield levels, it remained largely absorptive rather than indicative of a shift in sentiment.

Overall, the market closed with a bearish bias, as external inflation risks and uncertainty surrounding global energy markets continued to drive investor positioning and two-way quotes closed the day edging up higher.

Accordingly, the 01.05.28 maturity traded at the rate of 9.65%. The 15.09.29 maturity traded at the rate of 9.95%. The 01.03.30 maturity traded within the range of 9.99%-10.00%. The 01.10.32 maturity traded at the rates of 10.70%. The 01.06.33 maturity and 01.11.33 maturity traded at the rates of 11.05% and 11.03% respectively. The 15.06.34 maturity traded within the range of 11.00%-11.10%.

The weekly Treasury Bill auction scheduled for today which will have on offer a total amount of Rs. 90 billion. The auction will be comprising of Rs. 40 billion in 91-day Bills, Rs. 30 billion in 182-day Bills, and Rs. 20 billion in 364-day Bills. The offered amount is below the maturing volume, which is estimated at around Rs. 89.65 billion.

For context, the weekly Treasury Bill auction conducted last Wednesday (25) saw weighted average yields increase across the board for the first time in 10 weeks.  Accordingly, the yield on the 91-day Bill rose by 3 basis points to 7.64%, the 182-day Bill increased by 4 basis points to 7.95%, while the 364-day Bill saw an uptick of 9 basis points to 8.32%. The auction was undersubscribed at the first phase in competitive bidding, raising only Rs. 34.94 billion, or 43.68% of the total offered amount of Rs. 80 billion. The bid-to-cover ratio stood at 1.24 times. No further subscription was made under the second phase.

The total secondary market Treasury Bond/Bill transacted volume for 27 March was Rs. 13.64 billion.

In money markets, the net liquidity surplus was recorded at Rs. 268.86 billion yesterday. The Domestic Operations Department (DOD) of the Central Bank of Sri Lanka was seen draining out an amount of Rs. 120 billion by way of overnight Repo auction at a weighted average rate of 7.60% while an amount of Rs 148.94 billion was deposited at Central Bank’s SDFR (Standing Deposit Facility Rate) of 7.25% and an amount of Rs. 0.08 billion was deposited at Central Bank’s SLFR (Standing Lending Facility Rate) of 8.25%

The weighted average rates on overnight call money and Repo stood at 7.61% and 7.66% respectively.

Forex market 

The USD/LKR rate on spot contracts was seen depreciating, to close the day at Rs. 315.10/316.00 as against the previous day’s closing level of Rs. 314.70/315.00.

The total USD/LKR traded volume for 27 March was $ 87.10 million. 

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