Bond market sentiment turns negative

Monday, 16 August 2021 00:00 - - {{hitsCtrl.values.hits}}

3-year bond yield hits 7%
Money market liquidity decreases

By Wealth Trust Securities

The sentiment in the bond market turned negative during the trading week ending 13 August as yields were seen heading north on the short end of the yield curve and on the back of thin volumes.

The increase in yields was led by the three year duration as it moved above 7% for the first time since June 2020. The 01.12.2024 maturity was traded from a weekly low of 6.88% to a high of 7.10% and in comparison to its previous weeks closing of 6.87/90. In addition, selling interest on the maturities of 15.12.22, 15.11.23 and 01.10.25 saw its yields hit intraweek highs of 5.73%, 6.38% and 7.28%, respectively, as well against its previous week’s closing levels of 5.65/70, 6.27/32 and 7.27/27, reflecting an upward shift on the short end of the curve.

The continued increase in the stipulated cut-off rate of the 364-day bill maturity, decrease in money market liquidity, along with the prevailing uncertainty in the market since the bond auctions conducted on 29 July are seen as the reasons behind the negative sentiment. This is despite the subscription level at the weekly Treasury bill auction increasing to 93.17% of its total offered amount.

Meanwhile, the foreign holding in Rupee bonds remained steady at Rs. 2.087 billion for the week ending 11th August 2021 while the daily secondary market Treasury bond/bill transacted volumes for the first four trading days of the week averaged Rs. 7.34 billion.

In money markets, the total outstanding liquidity surplus decreased to Rs. 15.49 billion by the end of the week from its previous week’s Rs. 48.32 billion. Nevertheless, the weighted average rates on overnight call money and repos decreased marginally to average 5.03% and 5.07%, respectively, for the week against its previous weeks of 5.08% and 5.13%. The CBSL’s holding of government securities decreased to Rs. 1,174.21 billion from its previous week’s Rs. 1,186.1 billion.

USD/LKR

The forex market continued to remain inactive during the week. The daily USD/LKR average traded volume for the first four trading days of the week stood at $ 15.80 million.

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

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