Bond yields increase ahead of auctions; activity subdued

• Rs. 200 b T-bond auctions in the spotlight
• Rupee appreciates slightly

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 yesterday’s Treasury bond auctions. Yields were seen moving up further, albeit on relatively thin volumes.

Limited trades were observed on selected maturities on the short end of the yield curve. Accordingly, the 01.02.26, 15.05.26, 01.06.26 and 15.12.26 maturities were seen trading at the elevated levels of 10.25% to 10.45%. Similarly, the 15.12.27 maturity was seen increasing to an intraday high of 11.85% from an intraday low of 11.70%. The 15.02.28 was seen transacting at the elevated level of 11.90%.

The Treasury bond auctions with a total of Rs. 200 billion on offer, is due to be held today, 30 July. The auction will comprise of Rs. 80.00 billion from a bond due on 15 February 2028 bearing a coupon of 10.75%, Rs. 80.00 billion from a bond due on 15 October 2030 bearing a coupon of 11.00% and Rs. 40.00 billion from a bond due on 1 June 2033 bearing a coupon of 9.00%.

For context, the previous Rs. 138.00 billion Treasury bond auction on 11 July was undersubscribed, raising only Rs. 131.27 billion (95.12% of the target) despite bids exceeding the offer by 1.82 times. The 15.12.27 maturity was fully subscribed in the first phase and issued at a weighted average yield of 11.78%, above market expectations. For the 01.12.31 maturity, Rs. 73.24 billion of the Rs. 80.00 billion offered was raised at a weighted average yield of 12.31%, also above pre-auction rates.

The total secondary market Treasury bond/bill transacted volume for 26 July was Rs. 6.81 billion.

In money markets, the weighted average rate on overnight call money was at 8.53% and repo was at 8.83%.

The net liquidity surplus increased to Rs. 107.24 billion yesterday. An amount of Rs. 131.05 billion was deposited at Central Banks SDFR (Standard Deposit Facility Rate) of 8.25% while an amount of Rs. 3.80 billion was borrowed from its SLFR (Standard Lending Facility Rate) of 9.25%.

The DOD (Domestic Operations Department) of Central Bank injected liquidity by way of an overnight reverse repo auction for Rs. 20.00 billion at the weighted average rate of 8.50%.

Forex Market 

In the Forex market, the USD/LKR rate on spot contracts closed the day at Rs. 302.63/302.73 against its previous day’s closing level of Rs. 303.10/303.20.

The total USD/LKR traded volume for 26 July was $ 99.22 million.

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