Debt market sees overall yield curve in upward parallel shift

Monday, 26 August 2013 00:02 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Foreign selling on rupee bonds coupled with a spike in the yield of the 3.5-year maturity were seen as the two main reasons for the parallel shift upwards of the overall yield curve for the week ending 23 August. This was despite weighted averages (WAvg) of the 182-day and 364-day bills dipping by one basis point each at its weekly Treasury bill auction. Secondary market activity was witnessed mainly on the two liquid five-year maturities (i.e. 01 April 2018 and 15 August 2018) as its yields reflected an week on week (wow) increase of 44 basis points and 42 basis points respectively to close the week at levels of 11.75/80 and 11.79/84.

During the week yields were seen hitting an eight-month high of 11.89% and 11.90% respectively but closed marginally lower due to heavy buying interest setting in during the latter part on Friday. Furthermore, the two-year maturities traded actively at yields ranging between 10.90% to 11.15%, whilst the three-year maturities traded within the range of 10.95% to 11.15%. The three and a half-year maturity traded within a range of 11.35% to 11.52% and the eight-year maturity at levels of 11.60% to 11.80% during the week. However contrary to the increase in secondary market bond yields, secondary bill market yields remained steady during the week with the 364-day bill changing hands between 10.50% to 10.53%. In money markets, Central Bank conducted a daily reverse repo auction under its Open Market Operations (OMO) on Friday by injecting an amount of Rs. 5 billion in response to a net liquidity deficit of Rs. 1.55 billion, at a weighted average of 8.20%. An amount of Rs. 3.45 billion was seen been deposited at its repo window rate of 7.00% as well. However overnight call money and repo rates remained steady to average 8.70% and 8.15% respectively for the week as shortages or surpluses of liquidity were injected or absorbed by the Central Bank through its policy rates or OMO auctions or even a combination of both. Rupee depreciates during the week The rupee on spot next contracts dipped to a weekly low of Rs. 132.70 as a result of foreign selling on rupee bonds, importer demand and an increase on forward dollar premiums. However, selling interest at these levels saw the dollar / rupee on spot next contracts closing the week at levels of Rs. 132.60/65. The total USD/LKR traded volume for the first four days of this week stood at $ 44.49 million. Some of the forward dollar rates that prevailed in the market were 1-Month - 133.38; 3-Months - 135.08 and 6-Months - 137.45.