Parallel downward shift of the overall yield curve

• Foreign buying in to rupee bonds continues

By Wealth Trust Securities

The secondary bond market gathered some momentum during the week, as yields decreased on the back of fresh buying interest, mainly from foreign investors. The yields of the liquid maturities of 01.05.20, 01.08.24, 01.08.25, 01.08.26 and 15.05.30 were seen declining to intraweek lows of 9.85%, 10.15%, 10.20% each and 10.59% respectively against its opening highs of 9.95%, 10.30%, 10.35% each and 10.64%. 

The foreign holding in Rupee bonds was seen increasing by a further Rs. 1.5 billion during the week ending 11 November, recording its eighth consecutive week of inflows. 

Furthermore, the shorter maturities of 01.04.18, 15.11.18, the 2019 maturities (i.e. 01.07.19 and 15.09.19) and 2021 maturities (i.e. 01.08.21, 01.05.21 and 15.12.21) too, were seen changing hands within the range of 8.98% to 9.05%, 9.40% to 9.45%, 9.70% to 9.78%, 10.00% to 10.12%, reflecting a parallel downward shift of the overall yield curve. 

The decline in rates was further supported by the drop in all three weighted average yields at weekly Treasury bill auction, as well as the stable outcome of the Treasury bond auction.

However, the inflation figure for the month of October reflected a further increase for the third consecutive month, to 7.8% on the point to point and 6.1% on the annual average. 

The daily secondary market Treasury bond/bill transacted volume for the first three days of the week averaged Rs. 7.04 billion. In money markets, the overnight call money and repo rates remained mostly unchanged to average at 8.15% and 7.66% respectively during the week, as the average net surplus liquidity in the system stood at Rs. 16.90 billion. The Open Market Operations (OMO) Department was seen draining out liquidity throughout the week on an overnight basis at a weighted average of 7.25%. In addition it drained out a further Rs. 1.42 billion by way of an outright sale of a 59 day Treasury bill at a weighted average rate of 8.49%. The Central Bank of Sri Lanka’s Treasury bill holding decreased to Rs. 40.75 billion as at the end of the week.

 Rupee depreciates during the week

 The rupee on its spot contracts depreciated during the week to close at Rs. 153.60/68 against its previous weeks closing levels of Rs. 153.45/55 on the back of continued importer demand.

The daily USD/LKR average traded volume for the three days of the week stood at $ 39.85 million.

Some of the forward dollar rates that prevailed in the market were one month – 154.50/60; three months – 156.20/30 and six months – 158.80/90.