Bond market rally continues; yields drop further on active trade

• Rs. 40 b Bond auctions announced
• DOD to buy bonds through outright bond purchase auctions
• Rupee gains steadily

By Wealth Trust Securities

The secondary bond market on Wednesday witnessed a strong rally, with frenzied buying centered on the short to medium end of the yield curve. Considerable demand on 2026 durations (of 01.02.26, 01.06.26 and 01.08.26) in particular, saw its yields drop from 13.35% to 13.10%, with large volumes transacted. Similar activity was observed on the 2028 durations (of 15.03.28, 01.05. 28, 01.07.28 and 15.12.28) that saw yields trade down from 13.85% levels to 13.70%. Likewise, the maturities of 15.01.25, two 27’s (01.05.27 and 15.09.27) and 15.05.30 were seen changing hands at levels of 12.75%, 13.70% to 13.45% and 14.00% to 13.89% respectively. This was against the backdrop of the upcoming bond auctions and an outright purchase auction by the DOD of CBSL.

A Rs 40 billion round of Treasury Bond auctions are due to be held on 30 January 2024. The auctions will have on offer Rs 24 billion from a new maturity of 15 December 2026 with a coupon rate of 11.25%, and Rs 16 billion from a maturity of 15 December 2028 with a coupon of 11.50%.

In addition, it was also announced that an outright purchase auction conducted by the Domestic Operations Department (DOD) of CBSL, will be due today on the 01.06.2026 and 01.05.2027 maturities, for an amount of Rs 10 billion. For context, at the last round of outright purchase auctions, all offers were rejected on the respective maturities of 15.05.26, 01.06.26 and 01.08.26.

The total secondary market Treasury bond/bill transacted volume for 23 January was Rs. 77.29 billion.

In money markets, the weighted average rates on overnight call money and Repo stood at 9.10% and 9.76% respectively on Wednesday as the DOD (Domestic Operations Department) of Central Bank injected liquidity by way of an overnight and a 31-day term reverse repo auction for Rs 44.10 billion and Rs 50 billion at weighted average rates of 9.27% and 10.75% respectively.

The net liquidity surplus stood at Rs.103.08 billion yesterday as an amount of Rs. 9.04 billion was withdrawn from Central Banks SLFR (Standard Lending Facility Rate) of 10.00% against an amount of Rs. 156.22 billion deposited at Central Banks SDFR (Standard Deposit Facility Rate) of 9.00%. 

Forex Market 

In the Forex market, the USD/LKR rate on spot contracts closed the day up further at Rs. 318.10/318.40 against its previous day’s closing level of Rs.319.80/319.95.

The total USD/LKR traded volume for 23 January was $ 46.19 million. 

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