Secondary bond market ends week on positive note

• Primary auctions record bullish outcomes
• Foreign holdings in Rupee treasuries records a net outflow
• Money market liquidity increases
• Rupee depreciates

By Wealth Trust Securities

The secondary bond market witnessed a round of fresh buying interest during the week ending 31 January 2025 subsequent to the monetary policy announcement at where policy rates were kept unchanged.

The decrease in yields was driven by the outcomes of the primary bill and bond auctions while it led to yields dipping across the yield curve recording a shift downwards of the yield curve.

At the weekly Treasury Bill auction, the weighted average rates fell across all three maturities for the eighth consecutive week, extending a 12-week downward trend. The 91-day rate dropped 19 basis points to 7.93%, the 182-day by 16 basis points to 8.09%, and the 364-day by 16 basis points to 8.47%. The three-month rate hit a three-year low, dipping below 8.00% for the first time since December 2021.

This was followed by a round of Treasury Bond auctions conducted on Thursday which also successfully raised the entire Rs. 40.00 billion on offer. In particular, the 15.12.29 maturity recorded a resoundingly bullish outcome and was issued at a weighted average yield of 10.73%. This was well below market expectations as a similar 15.09.29 maturity was seen quoted at the two-way rate of 10.78%/10.80% prior to the auction.

Secondary market trades were mainly seen on the liquid, two maturities of 15.02.28 and 15.03.28 as its yields were seen dipping from its weeks opening highs of 10.20% each to weekly lows of 10.00% and 10.05% respectively. In addition, buying interest along the rest of the yield curve during mid-week saw the maturities of the 15.12.26, 01.05.28, 15.10.28, 15.09.29 and 15.10.30 dip to weekly lows of 9.05%, 10.12%, 10.28%, 10.69% and 11.20% respectively. 

The foreign holding in Rupee bonds decreased for the first time in three weeks, recording an outflow of Rs. 2.03 billion for the week ending 30 January 2025 while the Colombo Consumer Price Index – CCPI (Base: 2021=100) for the month of January 2025 was recorded at – 4.00% on a year-on-year basis as against – 1.70% recorded in December 2024.

The daily secondary market Treasury bond/bill transacted volumes for the first two days of the week averaged at Rs. 40.85 billion. 

In money markets, the total outstanding liquidity surplus increased to Rs. 151.96 billion as at the week ending 31 January, from Rs. 124.99 billion recorded the previous week. The Domestic Operations Department (DOD) of Central Bank injected liquidity during the week by way of a 6-day term reverse repo auctions at weighted average rate of 8.14% respectively. The weighted average interest rate on call money and repo were recorded at 7.99%-8.00% and 8.06%-8.08% respectively. 

The Central Bank of Sri Lanka (CBSL)’s holding of Government Securities was registered at Rs. 2,511.92 billion as at 31 of January 2025, unchanged from the previous week’s closing level.

Forex market

In the Forex market, the USD/LKR rate on spot contracts was seen appreciating, to close the week at Rs. 297.80/298.20 as against its previous week’s closing level of Rs. 298.15/298.40 and subsequent to trading at a high of Rs. 296.45 and a low of Rs. 298.57.

The daily USD/LKR average traded volume for the first two trading days of the week stood at $ 67.80 million. 

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