Bond yields continue to tick up ahead of auctions; activity subdued

• Rs. 60 b T-bond auctions in the spotlight
• Rupee appreciates further; closes below Rs. 300 for the first time since May

By Wealth Trust Securities

The secondary bond market yesterday kicked off the trading week on a subdued note, with market participants taking a cautious approach ahead of today’s Treasury bond auctions. Yields were seen moving up further, albeit on the back of low activity.

Accordingly, the yield on the 01.06.26. 15.05.26 and 01.08.26 maturities were seen moving up to levels of 10.80-10.90%. Similarly, the 15.12.26 maturity was seen trading at 11.10%. The 15.03.28 maturity followed suit to change hands at the rate of 12.38%, while the 15.12.28 maturity was seen trading within elevated range of 12.70%-12.74% levels. Additionally, trades were observed on the medium tenor 01.12.31 maturity within the range of 12.80-12.81%. 

A round of Treasury bond auctions totalling Rs. 60.00 billion is scheduled to be held today. The auction will comprise of Rs. 45.00 billion from a new 15 June 2029 maturity bearing a coupon of 11.75% and Rs. 15.00 billion from 1 October 2032 maturity bearing a coupon of 9.00%.

For context, the previous round of Treasury bond auctions conducted on 30 July went undersubscribed. An amount of only Rs. 146.26 billion (73.13%) was raised out of the total Rs. 200.00 billion offered, despite total bids exceeding the offer by 1.72 times. The 15.02.28, 15.05.30 and 01.06.33 maturities were issued at the weighted average yields of 12.07%, 12.55% and 12.83% respectively. Maturity-wise, the relatively shorter tenor 15.02.28 maturity was fully subscribed but the other two tenors failed to raise the respective offered amounts.

The total secondary market Treasury bond/bill transacted volume for 8 August was Rs. 9.34 billion.

In money markets, the weighted average rate on overnight call money was at 8.55% and repo was at 8.86%.

The net liquidity surplus increased to Rs. 118.24 billion yesterday. An amount of Rs. 118.37 billion was deposited at Central Banks SDFR (Standard Deposit Facility Rate) of 8.25% while an amount of Rs. 0.13 billion was borrowed from its SLFR (Standard Lending Facility Rate) of 9.25%.

The DOD (Domestic Operations Department) of Central Bank refrained from injecting liquidity by way of repo auctions.

Forex Market 

In the Forex market, the USD/LKR rate on spot contracts closed the day at Rs. 299.50/299.80 against its previous day’s closing level of Rs. 300.00/300.20. This was the first instance since 21 May that the rupee was seen closing below the Rs. 300.00 level.

The total USD/LKR traded volume for 9 August was $ 78.73 million.

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