Bond market rally continues ahead of weekly Treasury bill auction

• Rs. 145 b Treasury bill auction in focus
• Rupee edges down marginally

By Wealth Trust Securities

The secondary bond market yesterday retained its bullish momentum with transaction volumes remaining robust and yields falling further. Trading was primarily on the short to medium end of the yield curve, with a further surge of aggressive buying concentrated on 2026 to 2028 durations. The 2026 durations (01.02.26, 01.06.26 and 01.08.26) were seen trading down from intraday highs of 11.95% to 11.60%, on active trade. Similarly, 2028 durations (15.03.28, 01.07.28 and 15.12.28) as well were seen trading down from intraday highs of 12.60% to 12.50%. Additionally, trades were observed on the maturities of 15.01.25 and 2027 duration (01.05.27 and 15.09.27) within the ranges of 11.30% to 11.20% and 12.45% to 12.20% respectively.

In secondary market bills, August maturities were seen changing hands within the range of 11.50% to 11.25% respectively.

The weekly Treasury bill auction due today, will have in total an amount of Rs. 145 billion on offer, which will consist of Rs. 40 billion on the 91-day maturity, Rs. 50 billion on the 182-day maturity and a further Rs. 55 billion on the 364-day maturity. This reflects a decrease of Rs 15 billion on the offered amount on a week-on-week basis.

For context, the Treasury bill auction conducted last Wednesday (31 January), saw the weighted average yields drop drastically across the board for a second consecutive week. The heavy demand witnessed led to steep declines, as the 91-day maturity plunged by 138 basis points to 11.97%, the 182-day maturity by 121 basis points to 12.20%, and the 364-day maturity by 78 basis points to 12%, falling to its lowest levels seen since March 2022. The total offered amount of Rs. 160 billion was raised in the first phase of the auction, with a further Rs. 40 billion being raised at its second phase. The second phase also went oversubscribed, with bids exceeding Rs. 200 billion.

The total secondary market Treasury bond/bill transacted volume for 5 February was Rs. 10.45 billion.

In money markets, the weighted average rates on overnight call money and Repo stood at 9.11% and 9.55% respectively as the DOD (Domestic Operations Department) of the Central Bank injected liquidity by way of an overnight reverse repo auction for Rs. 16.13 billion at the weighted average rate of 9.11%.

The net liquidity deficit stood at Rs. 9.86 billion yesterday as an amount of Rs. 0.15 billion was withdrawn from Central Banks SLFR (Standard Lending Facility Rate) of 10% against an amount of Rs. 6.41 billion has been deposited at Central Banks SDFR (Standard Deposit Facility Rate) of 9%. 

Forex Market 

In the Forex market, the USD/LKR rate on spot contracts closed the day weaker at Rs. 314/314.50 against its previous day’s closing level of Rs. 312.40/312.80.

The total USD/LKR traded volume for 5 February was $ 57.10 million. 

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