Momentum in secondary bond market remains positive

• Downward shift of the yield curve for a second consecutive week
• Foreign outflow in Rupee bonds continue for a second consecutive week

By Wealth Trust Securities

The momentum in the secondary bond market remained positive during the week ending 12 January as yields were seen decreasing, predominantly subsequent to the weekly Treasury bill auction outcome, despite foreign outflows for a second consecutive week.  

At the auction, the weighted average on the 364 day bill decreased once again after a lapse of one week while the weighted average on the 182 day bill continued to decrease. Foreign and local buying interest in the liquid maturities of the two 2021’s (i.e. 01.03.21 and 01.05.21), two 2026’s (i.e. 01.06.26 and 01.08.26) and 15.06.27 saw its yields hit weekly lows of 9.10% each, 9.48%, 9.45% and 9.47% respectively against its opening highs of 9.35%, 9.30% and 9.75% each reflecting an downward shift of the overall yield curve for a second consecutive week. Furthermore, activity was seen on the 15.09.19, 01.05.20 and 15.05.30 maturities as well within the range of 8.90% to 9.05%, 9.05% to 9.15% and 9.84% to 9.95% respectively as well. However, profit taking and selling interest towards the latter part of the week saw yields increase from its weekly lows as activity remained high during the week. 

The foreign holding in Rupee bonds was seen decreasing by Rs. 798.84 million for the week ending 10 January 2018 to record its second consecutive week of outflows totalling Rs. 3.16 billion. 

The daily secondary market Treasury bond/bill transacted volume for the first four days of the week averaged Rs. 11.69 billion.

In money markets, the overnight call money and repo rate averaged at 8.11% and 7.55% respectively for the week as the average net surplus liquidity in the system stood at Rs. 37.82 billion during the week. The Open Market Operations (OMO) Department drained out liquidity throughout the week on an overnight basis at a weighted average of 7.25% in addition to mopping up in total an amount of Rs. 81.2 billion on a permanent basis by way of auctions for outright sales of Treasury bills and term repos at weighted averages ranging from 7.28% to 7.60% for duration ranging from 2 days to 77 days.

Rupee dips during the week

In Forex markets during the week, the rupee rate on spot contracts depreciated further to close the week at Rs. 153.93/00 against its previous week’s closing of Rs. 153.55/65 on the back of continued importer demand and dollar buying interest outweighing inward remittances.

The daily USD/LKR average traded volume for the four days of the week stood at $ 64.38 million.

Some of the forward dollar rates that prevailed in the market were one month – 154.85/90; three months – 156.40/60 and six months – 158.75/90.