Money market liquidity improves significantly

• Bond market yields fluctuate; sentiment closes positively
• Direct issuance window fully taken up on the seven-year maturity 
• Foreign inflow trickles in for an eighth consecutive week
• Rupee dips 

By Wealth Trust Securities

The liquidity position in money markets witnessed a significant improvement during the shortened trading week ending 15 July and by over Rs. 200 billion overall, recording a net deficit of Rs. 521.76 billion against a peak of Rs. 735.46 billion recorded on the 12 April. The CBSL’s holding of Gov. Securities however increased by only Rs. 35.17 billion correspondently to Rs. 2,269.33 billion against its previous weeks Rs. 2,234.16 billion.

In the secondary bond market, yields on the liquid 01.06.25 and 15.07.29 maturities were seen fluctuating during the week before closing substantially lower from its weekly highs. Selling interest following the primary auction results saw yields increase on the said maturities to intra week highs of 28.50% and 31.40% respectively.  

At the T-bond auctions, the weighted average rate on the three-year maturity of 01.06.2025 recorded a jump of 441 basis points or 4.41% while at the weekly T-bill auction, the three-month bill weighted average rate increased further by 403 basis points or 4.03% as well to 32.11%.

However, renewed buying interest towards the latter part of the week saw yields decrease once again, mainly on the two liquid bond maturities to intra week lows of 27.50% and 28.48% respectively, while market sentiment turned positive. This intern saw the full quota of Rs. 8 billion offered through the direct issuance window on the seven-year maturity of 15.07.2029 taken up fully at 26.51%.

The foreign holding in Rupee bonds continued to increase for an eighth consecutive week to register an inflow of Rs. 300 million for the week ending 12 July, taking its total holding to Rs. 4.74 billion for the first time since 25 May 2021.

The daily secondary market Treasury bond/bill transacted volumes for the first two trading days of the week averaged Rs. 27.64 billion.   

USD/LKR

In the Forex market, the middle rate for USD/LKR spot contracts depreciated further during the week to close the week at Rs. 361.24 against its previous weeks closing of Rs. 360.3497.

The daily USD/LKR average traded volume for the first three trading days of the week stood at $ 111.60 million.  

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