Parallel shift upwards of yield curve for 2nd consecutive week

Monday, 20 March 2017 00:02 -     - {{hitsCtrl.values.hits}}

By Wealth Trust Securities

Continued selling interest in secondary bond markets during the week ending 17 March, resulted in yields increasing for a second consecutive week, reflecting a marginal parallel shift upwards of the overall yield curve. This sentiment was further supported by the primary market auctions, where all bids at the weekly Treasury bill auction were rejected and the Treasury bond auction, where the weighted average yields of the 15.01.19 and 01.08.24 maturities increased by 20 and 25 basis points respectively. 

In secondary bond markets, activity remained moderate during the week with the liquid maturities of 01.08.24, 01.08.26 and 15.50.30 hitting weekly highs of 13.20%, 13.35% and 13.45% respectively against its previous weeks closing levels of 13.15/25, 13.20/25 and 13.10/25. 

Furthermore, selling interest of the 01.04.18, 01.05.20, 15.12.21 and 01.06.26 maturities, resulted in trades taking place at highs of 11.43%, 13.00%, 13.13% and 13.35% respectively, leading to a upward shift of the overall yield curve. Meanwhile, the foreign holding in Sri Lankan Rupee bonds recorded an outflow for the first time in three weeks to the value of Rs. 1.4 billion. 

In money markets, the call money and repo rates remained mostly unchanged to average 8.50% and 8.57% respectively during the week as the OMO (Open Market Operation) Department of the Central Bank of Sri Lanka continued to infuse liquidity throughout the week on an overnight basis at weighted averages of 8.50%. The average net liquidity shortfall in the system increased to Rs. 20.38 billion for the week, against its previous week’s average of Rs. 13.21 billion. 

Rupee loses for a second consecutive week 

The downward trend in the Rupee continued for a second consecutive week as the USD/LKR rate on active two week forward contracts depreciated during the early part of the week to levels of Rs. 153.40/60 against its previous weeks closing levels of Rs. 152.35/40, on the back of continued importer demand. However, it was seen appreciating once again towards the later part of the week to close the week at levels of Rs. 152.55/70. The daily USD/LKR average traded volume for the first four days of the week stood at $ 93.06 million. 

Given are some forward dollar rates that prevailed in the market: three months – 154.90/00; six months – 157.95/20.