Secondary bond market activity moderates; yields stable

• Rs. 155 b T. Bill auction in the spotlight
• Rupee depreciates further

By Wealth Trust Securities

The activity in the secondary bonds market slowed down yesterday with modest transaction volumes and yields holding broadly stable. This was despite slight profit taking pressure on the shorter tenors. However, demand continued on the medium end of the yield curve which saw yields holding broadly stable. Accordingly, trades continued to be focused on the short to medium end of the yield curve with a specific emphasis on 2026 to 2032 durations.

The popular 15.12.26 maturity was seen moving up marginally to change hands at 10.70%, while the other liquid 2026 tenors of 01.06.26 and 01.08.26 were seen trading within the range of 10.49% to 10.55%. The 2027 tenors of 01.05.27 and 15.09.27 were also seen edging up to hit an intraday high of 11.10% as against an intraday low of 10.95% collectively. The 2028 tenors saw subdued activity, with just some sparse trades observed only on the 01.05.28 maturity at the rate of 11.50%. However, buying interest on the medium tenor bonds of 15.05.30 and 01.10.32 was seen, with yields hitting intraday lows of 12.05% and 12.28% as against intraday highs of 12.20% and 12.30% respectively. The Treasury bill auction due today will see a total volume of only Rs. 155 billion on offer, an increase of Rs. 25 billion from the previous week. This will consist of Rs. 30 billion on the 91-day maturity, Rs. 60 billion on the 182-day and Rs. 65 billion on the 364-day maturities.

For context, at the weekly Treasury bill auction conducted last Wednesday (30 April 2024), the weighted average yields declined across all three maturities for a fourth consecutive week and were recorded below 10.00% for the first time since 2 March 2022. 

Last week’s decline was particularly sharp, with the 91-day maturity falling by 29 basis points to 9.61%, the 182-day maturity by 19 basis points to 9.89% and the 364-day maturity by 22 basis point to 9.99%. The entire offered amount of Rs 130.00 billion was taken up at the 1st phase, with total bids received exceeding the total offered amount by 2.22 times. A further Rs 13.00 billion was raised at the 2nd phase across all three tenors at the weighted averages determined at the 1st phase, being the maximum amount offered. This was out of a total market subscription of a staggering Rs. 103.82 billion.

The total secondary market Treasury bond/bill transacted volume for 6 May was Rs. 9.40 billion.

In money markets, the weighted average rate on overnight call money was at 8.64% and repo was at 9.02%.

The net liquidity surplus stood at Rs. 168.95 billion yesterday as an amount of Rs. 0.03 billion was withdrawn from the Central Banks SLFR (Standard Lending Facility Rate) of 9.50% against an amount of Rs. 183.97 billion deposited at Central Banks SDFR (Standard Deposit Facility Rate) of 8.50%. 

Further, the DOD (Domestic Operations Department) of the Central Bank injected liquidity by way of an overnight reverse repo auction for Rs. 15.00 billion at the weighted average rates of 8.65%.

Forex Market 

In the Forex market, the USD/LKR rate on spot contracts closed the day down at Rs. 299.40/299.70 against its previous day’s closing level of Rs. 298.00/298.50.

The total USD/LKR traded volume for 6 May was US $ 36.50 million.

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