Yields on selective maturities decline distorting the yield curve

Monday, 19 November 2012 00:00 -     - {{hitsCtrl.values.hits}}

By Wealth Trust Securities

Continued buying interest on specific bond maturities saw its yields decline during the week, creating a distorted yield curve.

The five-year maturity reflected the sharpest weekly decline of 22 basis points (bp) to a weekly low of 12.43% whiles the three-year and five-year maturities dipped by 15 bp each to weekly lows of 12.45% and 13.00% respectively.

This was amidst the Central Bank’s borrowing costs increasing further at its weekly Treasury bill auction on the 182-day and 364-day bills to levels of 12.05% and 12.73% respectively and other bond maturities been offered at higher levels, which led to the erratic yield curve.

In money markets, liquidity returned back to the system on Friday as the Central Bank conducted a repo auction for an amount of Rs. 5.5 billion at a weighted average of 9.32%, in order to drain excess liquidity from the system. Despite the volatility in liquidity throughout the week, overnight call money and repo rates remained steady to average 10.54% and 9.65% for the week, as any shortage or surplus of liquidity was either infused or drained through CBSL’s Open Market Operations (OMO).

Dollar drops as much

as Rs. 1 during the week

Subsequent to the positive outcomes from the Budget reading with regard to capital markets, the rupee gained ground throughout the week to a weekly high of Rs. 129. 85 against its previous week’s closing level of Rs. 130.80.  In addition, selling on forward dollar contracts attributed to the appreciation of the green back.

Given are some forward dollar rates that prevailed in the market on Friday: One month– 131.20; three months – 133.58; and six months – 136.90.