Bond market sentiment turns bullish during the week

• Parallel shift downwards of the yield curve during the week 
• Foreign outflows continue for a seventh consecutive week 

By Wealth Trust Securities

The secondary bond market sentiment was seen turning bullish during the week ending 19 October following the confirmation of the $ 1 billion foreign currency term financing facility. Considerable buying interest led to yields dipping across the yield curve recording a parallel shift downwards of the yield curve. This was despite the weighted averages increasing across all three maturities at the weekly Treasury bill auction. 

Activity centred mainly on the short end of the yield curve consisting of both foreign and local participation. The yields on the liquid maturities of 01.03.21, 15.10.21, 15.12.21 and 15.07.23  dipped to intraweek lows of 10.75%, 10.80%, 10.83% and 11.30% respectively against its previous weeks closing levels of 11.25/35, 11.40/50, 11.40/55 and 11.70/73. On the short end of the curve, the 15.09.19 bond along with July and August 2019 bills were seen changing hands within the ranges of 10.20% to 10.50%, 10.15% and 10.00% to 10.15% respectively as well.   

The foreign holding in Rupee bonds was seen dipping to over a 15-month low of Rs. 236 billion during the week ending 17 October to levels last seen during early July 2017. The week on week outflow was Rs. 5.29 billion recording its seventh consecutive week of outflows. 

The daily secondary market Treasury bond/bill transacted volume for the first four days of the week averaged Rs. 9.54 billion. 

 In money markets, call money and repo rates averaged 8.45% and 8.41% respectively for the week as the Open Market Operations (OMO) Department of the Central Bank injected liquidity throughout the week by way of overnight and seven to 14 days reverse repo auctions at weighted averages ranging from 8.31% to 8.45%. The net liquidity shortfall in the system averaged at Rs.26.03 billion for the week. 

 Rupee dips during the week

 In the Forex market, the USD/LKR rate on the spot contracts closed the week lower at Rs.171.65/80 against its previous weeks closing of Rs.169.40/60 on the back of importer demand, foreign selling in Rupee bonds and globally strengthening dollar.   The daily USD/LKR average traded volume for the first four days of the week stood at $ 74.10 million.  Some of the forward dollar rates that prevailed in the market were: one month – 172.70/00; three months – 174.70/10; and six months – 177.70/20.