Bond market weekly review: Medium tenors rally

• Rs. 210 b T-bond auction fully subscribed; outcome bullish
• T-bill rates stabilise at auction
• Foreign holdings in Rupee treasuries records net inflow
• Total outstanding liquidity surges
• Rupee depreciates marginally

By Wealth Trust Securities

The Secondary Bond market commenced the week ending 14 March with rates initially holding broadly steady. Yields were seen trading sideways in a narrow band with market activity and transaction volumes seen at healthy levels for the first half of the week. Subsequently, the Rs. 210 billion Treasury Bond auction triggered a rally. As a result, aggressive buying interest saw yields pushing lower during the latter part of the week. Trading activity and transaction volumes were seen increasing to elevated levels. In conclusion, two-way quotes were seen closing down on a week-on-week basis, particularly on mid-2028 tenors and beyond, while the short end of the yield curve closed steady. This resulted in further flattening of the yield curve.

Accordingly, the 15.12.26 maturity was seen trading at the rate of 8.78%. The 01.05.27 maturity was observed trading within the range of 9.22-9.20%.

The mid-2028 tenors and beyond saw considerable declines in rates. The yield on the 15.10.28 was seen declining down from intraweek high to low of 10.35%-10.20%. The 15.09.29 maturity was seen trading down from an intraweek high of 10.74% to hit a low of 10.53%. The yield on 15.10.30 maturity declined sharply from an intraweek high of 11.02% to a low of 10.80%.

At the Treasury Bond auctions conducted last Wednesday, the entire Rs. 210.00 billion on offer was successfully raised at the first phase in competitive bidding. This was an impressive outcome as the auction was incidentally the largest for the year 2025 so far. The total bids received exceeded the offered amount by a staggering 2.29 times.

In particular, the 15.12.29 maturity (11.75% coupon) recorded a bullish outcome and was issued at a weighted average yield of 10.72%. This was below market expectations as the 15.12.29 maturity was seen quoted at the two-way rate of 10.70%/10.75% and traded at 10.74% prior to the auction. Maturity-wise the entire Rs. 85.00 billion offered was snapped up at the first phase of subscription in competitive bidding.

The medium tenor 15.12.32 maturity (11.00% coupon) was issued at the weighted average rate of 11.40%. This was broadly in line with market expectations as the same maturity was issued at the weighted average yield of 11.41% at the previous round of auctions. The maturity also raised the entire Rs. 75.00 billion on offer at the first phase.

The medium tenor 15.09.34 maturity (10.25% coupon) was issued at the weighted average rate of 11.50%. This was an impressive outcome considering that there was only a 10-basis point term spread over the 2032 tenor. The maturity also raised the entire Rs. 50 billion on offer at the first phase.

Nevertheless, yields at the weekly Treasury Bill auctions were stabilised, ending a 13-week streak of consecutive declines across all three offered maturities prior. The weighted average rate only on the 91-day tenor edged down marginally by 1 basis point to 7.52%, while the 182-day and 364-day tenors remained unchanged at 7.86% and 8.34%, respectively. Total bids received exceeded the offered amount by 1.99 times, and the entire Rs. 165.50 billion on offer was successfully raised in the first phase in competitive bidding.

The foreign holding in Rupee Treasuries recorded a net inflow for the week ending 13 March 2025 amounting to Rs. 330.00 million, and as a result the total holding notched up to Rs. 79.27 billion.

The daily secondary market Treasury bond/bill transacted volumes for the first three days of the week averaged at Rs. 51.48 billion. 

In money markets, the total outstanding liquidity surplus increased to Rs. 188.61 billion as at the week ending 14 March 2025, from Rs. 166.80 billion recorded the previous week. The weighted average interest rates on call money and repo were recorded within the rates of 7.94%-7.98% and 7.97%-7.99% respectively. 

The Central Bank of Sri Lanka’s (CBSL) holding of Government Securities was registered at Rs. 2,511.92 billion as at 14 March, unchanged from the previous week’s closing level.

Forex market

In the Forex market, the USD/LKR rate on spot contracts was seen depreciating marginally, to close the week at Rs. 295.50/295.60 as against its previous week’s closing level of 

Rs. 295.40/295.50 and subsequent to trading at a high of Rs. 295.65 and a low of Rs. 296.80.

The daily USD/LKR average traded volume for the first three trading days of the week stood at $ 90.47 million. 

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