Outcome of bond auctions lead to steep inversion of yield curve

• Secondary market activity picks up
• Rupee steady

By Wealth Trust Securities 

The primary Treasury bond auctions held yesterday reflected mixed results as the weighted average rate on the 3-year maturity of 01.06.2025 increased to 28.45% against its pre-auction rate of 25.50/27.50 and previous average of 28.18% while the 9-year maturity of 15.05.2031 fetched a weighted average of 23.91% in comparison to a weighted average of 26.51% recorded on a 7-year maturity of 15.07.29 on 11 July, which led to a steep inversion of the overall yield curve.

The total amount of Rs. 20 billion was taken up on the 01.06.2025 maturity at its 1st and 2nd phases of the auction while Rs. 30 billion was taken up on the 15.05.2031 maturity at its 1st phase. A further 20% will be on offer on the 15.05.2031 maturity at its weighted average rate by way of a direct issuance window until close of business of the day prior to settlement (i.e. 4.00 pm on 29.07.2022). 

Meanwhile, activity in the secondary bond market picked up following the auction results as the liquid 01.06.25 maturity was seen changing hands within the range of 27.90% to 28.31%. In secondary bills, 28th October 2022 bill maturity traded at a level of 26.50%.

The total secondary market Treasury bond/bill transacted volume for 27 July was Rs. 59.11 billion.  

In money markets, the net liquidity deficit stood at Rs. 436.29 billion yesterday as an amount of Rs. 289.58 billion was deposited at Central Bank’s Standard Deposit Facility Rate (SDFR) of 14.50% against an amount of Rs. 725.86 billion withdrawn from Central Bank’s Standard Lending Facility Rate (SLFR) of 15.50%. The weighted average rate on overnight Call money and REPO stood at 15.50% each.

Forex market 

In the forex market, the middle rate for USD/LKR spot contracts remained steady for a third consecutive day at Rs. 361.00. The total USD/LKR traded volume for 27 July was $ 126.17 million.  

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