Shift in momentum reflects parallel shift upwards on the yield curve

The downward movement of bond yields experienced in the secondary market fuelled by Treasury bill auction results which continued to decline for a fourth consecutive week came to a halt with the rates even picking up considerably during the week.

The wait-and-see approach by market participants ahead of the Government’s annual budget coupled with market assumption that yields had bottomed off were seen as the reasons behind this as volumes traded declined considerable as well, which is considered a negative sentiment.

In line with this, the yield curve took a parallel shift upwards as the three year and five year maturities reflected the sharpest weekly increases of 50 bp each to weekly highs of 12.50% and 12.25% respectively. In addition the 1-1/4 year maturity increased by 45 bp as well to a weekly high of 12.20%. Furthermore considerable volumes on the 364 day bill was seen changing hands at levels of 12.05% to 12.25%, reflecting an increasing trend on secondary market bills as well.

Money market liquidity back in the green

However in a more positive note, money market liquidity reflected a turn around this week from its negative levels the previous week as central bank started conducting repo auctions in order to drain excess liquidity from the system. This is turn saw overnight call money and repo rates ease marginally towards the latter part of the week as liquidity is expected to increase further next week, subsequent to a bond maturity to the tune of 64.9 b due on 15 October 2012.

Rupee fluctuates during the week

 The rupee was seen fluctuating within a band of Rs. 128.15 to Rs. 128.70 during the week. The USD/LKR rate was seen appreciating to levels of Rs. 128.15 during the early part of the week on the back of dollar inflows into the system and forward bookings by exporters. However importer led demand towards the latter part of the week saw rate dip once again to close the week at levels of Rs. 128.35/128.45.

Give below are some forward dollar rates that prevailed in the market: one month – 129.65; three months – 131.90; six months – 135.

(Wealth Trust Securities Limited)