Bond yields decrease for the first time in four weeks

• Foreign holding in Rupee bonds decreases sharply
• Money market liquidity increases sharply

By Wealth Trust Securities

The secondary bond market saw yields decreasing during the week ending 28 February 2020, reversing three consecutive weeks of increases. A significant improvement in money market liquidity was seen as the driving force behind the decline in yields which was supported by the outcome of the weekly Treasury bill auction at where the weighted average yield on the market favourite 364 day bill declined after a laps of two weeks.   

The liquid maturities of 2023’s (i.e. 15.03.23, 15.05.23, 15.07.23 & 01.09.23), 2024’s (i.e. 01.01.24, 15.03.24, 15.06.24 & 15.09.24), 15.10.27 and 01.09.28 saw its yields decreasing to weekly lows of 9.25%, 9.36%, 9.30% each, 9.60%, 9.65%,9.60%, 9.62%, 9.80% and 9.90% respectively against its previous weeks closing levels of 9.51/55, 9.50/60, 9.55/60, 9.55/65, 9.70/80 each, 9.75/83 each, 9.90/05 and 9.95/10, reflecting a parallel shift downwards of the overall yield curve week on week for the first time in four weeks. 

Nevertheless, selling interest at these levels saw yields pulling back once again, trimming its weeklong decreases. In addition, maturities of 01.05.21, 01.08.24 and 15.06.27 were seen changing hands at levels of 8.60% to 8.70%, 9.65% to 9.90% and 9.85% to 10.12% as well.

The foreign holding in Rupee bonds recorded its sharpest decline in 26 weeks with an outflow of Rs. 11.42 billion for the week ending 26 February 2020, a level last witnessed on 28 August 2019. 

The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged at Rs. 14.10 billion. 

In money markets, the Domestic Operations Department (DOD) of Central Bank drained out liquidity during the latter part of the week on an overnight and seven day basis at weighted average yields ranging from 6.96% to 7.04% as the overnight net liquidity surplus in the system was seen increasing to over a nine month high of Rs. 66.18 billion by Thursday. The overall liquidity in the system improved as well to a surplus of Rs. 47.98 billion against its previous week’s deficit of Rs. 0.02 billion. The weighted average yields on overnight call money and repo rates averaged 6.97% and 7.01% respectively for the week. 

Rupee loses during the week 

The USD/LKR rate on spot contracts depreciated during the week to close the week at levels of Rs. 181.85/95 against its previous weeks closing level of Rs. 181.55/60 on the back of buying interest by banks.

The daily USD/LKR average traded volume during the first four days of the week stood at $ 73.79 million. 

Some of the forward dollar rates that prevailed in the market were one month – 182.40/60; three months – 183.40/60 and six months – 184.90/20.

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