Bull run in bond markets continue for third consecutive week

• Yield curve shifts downwards for third consecutive week 
• Foreign outflow for first time in four weeks

By Wealth Trust Securities

The bond market opened the week ending 5 July on a bearish note but reversed to a positive note towards the later part of the week on the back of an impressive weekly bill auction along with renewed buying interest. Yields dipped across the yield curve for a third consecutive week mainly on the short end of it. 

At the auction, the weighted averages decreased across the board by 07, 17 and 11 basis points respectively to 8.17%, 8.32% and 8.59% on the 91 day, 182 day and 364 day maturities.

The considerable buying interest on the shorter tenure maturities of 01.05.20 and 2021’s (i.e. 01.03.21, 01.05.21, 01.08.21, 15.10.21 and 15.12.21) saw its yields dip to intra week lows of 8.30%, 9.03%, 9.07%, 9.05%, 9.02% and 9.08% respectively against its previous weeks closing levels of 8.55/65, 9.10/20, 9.15/25, 9.15/30, 9.25/30 and 9.25/35. This in turn led to a buying spree on the maturities of 01.10.22, 2023’s (i.e. 15.03.23, 15.07.23 and 15.12.23) and 2024’s (i.e. 15.03.24 and 15.06.24) as it’s yields hit weekly lows of 9.52%, 9.63%, 9.65%, 9.67% and 9.80% each respectively. 

In addition, the maturities of  2027’s (i.e. 15.01.27 and 15.06.27), 01.09.28 and 01.05.29 on the belly end of the curve hit lows of 10.15%, 10.20%, 10.25% and 10.31% respectively as well. This was despite the foreign holding in rupee bonds recording an outflow of Rs. 3.9 billion for the week ending 3 July, reversing three consecutive weeks of inflows.

The daily secondary market Treasury bond/bills transacted volume for the first four days of the week averaged Rs. 10.13 billion.  

In money markets, the overnight call money and repo rates averaged at 7.82% and 7.88% respectively for the week as the total money market liquidity stood at Rs. 41.64 billion. The overnight net surplus liquidity in the system averaged Rs. 18.61 billion for the week as the OMO Department of the Central Bank of Sri Lanka mopped up liquidity by way of overnight, seven-day to nine-day term repo auctions at weighted averages ranging from 7.71% to 7.85%.

Rupee appreciates further

The USD/LKR rate on spot contracts appreciated further during the week to close the week at Rs. 176.12/20 against its previous weeks closing of Rs. 176.40/45 on the back of continued selling interest by banks and export conversions.

The daily USD/LKR average traded volume for the first four days of the week stood at $ 61.40 million.

Some of the forward dollar rates that prevailed in the market were 1 month – 176.75/90; 3 months – 178.10/30 and 6 months – 180.10/30.