Downward parallel shift of yield curve

Monday, 19 March 2018 00:00 - - {{hitsCtrl.values.hits}}

364 day bill average continues increasing trend to hit 8-month high

By Wealth Trust Securities

The secondary bond market witnessed renewed buying interest by both foreign and local participants during the week ending 16 March 2018 as yields decreased across the yield curve.

Trades were mainly seen on the maturities of 01.03.21, 01.05.21, 01.10.22, 01.08.25, 01.06.26, 01.08.26 and 15.06.27 as its yields were seen hitting weekly lows of 9.85%, 9.90%, 10.00%, 10.20%, 10.22%, 10.20% and 10.35% respectively on the back of moderate volumes against its previous week’s closing levels of 9.95/97, 10.03/05, 10.05/20, 10.30/40 each and 10.35/45, reflecting a parallel shift downwards of the overall yield curve on a week on week basis.

Furthermore, two-way quotes of the 01.09.23, 01.08.24 and 15.05.30 maturities decreased to levels of 10.05/15, 10.10/20 and 10.45/55 respectively against their previous week’s closing levels of 10.10/25, 10.20/35 and 10.50/70. This was despite the weighted average on the 364 day bill increasing for a sixth consecutive week to an eight-month high of 9.70%, accumulating a total increase of 80 basis points over the past six weeks.

The foreign holding in rupee bonds recorded a marginal increase of Rs. 131 million for the week ending 14 March 2018.

The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged Rs. 4.95 billion.

In money markets, the Open Market Operation (OMO) Department of the Central Bank of Sri Lanka draining out liquidity throughout the week on an overnight basis at weighted averages ranging from 7.26% to 7.28% as the average net surplus liquidity in the system stood at Rs. 36.63 billion. The overnight call money and repo rates averaged 8.13% and 7.61% respectively.

Rupee continues to dip

In Forex markets, the USD/LKR rate on spot contracts depreciated further during the week, to close the week at Rs. 156.05/10 against its previous week’s closing level of Rs. 155.45/55 on the back of continued seasonal importer demand.

The daily USD/LKR average traded volume for the four days of the week stood at $ 68.50 million.

Some of the forward dollar rates that prevailed in the market were one month - 156.85/00; three months - 158.55/75 and six months - 160.90/20.