Secondary bond market sentiment turns bearish

• Foreign holding in rupee bonds turns negative for the first time in four weeks

By Wealth Trust Securities

Activity in the secondary bond market dried up considerably during the shortened trading week ending 8 September as most market participants were seen on the sidelines. The daily average traded volume dipped to a 22-week low of Rs. 3.78 billion for the week. This was despite the upward trend in weighted averages at the weekly Treasury bill auction reversing for the first time in four weeks with the 182 day and 364 day bills dipping by 07 and 09 basis points respectively to 9.23% and 9.58%. A limited amount of activity was witnessed on the liquid maturities of 01.08.21 and 15.05.23 with it changing hands at levels of 10.37% to 10.43% and 10.41% to 10.48% respectively towards the later part of the week on the back of foreign buying against its previous weeks closing levels of 10.34/40 and 10.45/60. In addition the yields of the maturities of 01.03.21 and 15.12.21 moved up as well during the week to hit weekly highs of 10.28% and 10.30% respectively.

The foreign holding in rupee bonds was seen reversing its increasing trend witnessed over the previous three weeks to record a marginal outflow of Rs. 377 million for the week ending 6 September.

In money markets, the Open Market Operations (OMO) Department was seen mopping up excess liquidity by way of four auctions for outright sales of Treasury bills during the week. The auctions drained an amount of Rs. 11.85 billion in total at weighted average of 8.52% for 32 days, 8.50% for 35 days, 8.53% for 37 days and 8.54% for 42 days as the average net surplus liquidity in the system stood at Rs. 29.76 billion for the week. The overnight call money and repo rates averaged at 8.10% and 8.13% respectively for the week as OMO Department further drained out liquidity throughout the week on an overnight basis at weighted averages ranging from 7.27% to 7.29%.

Rupee depreciates during the week

The USD/LKR rate on spot contracts closed the week lower at Rs. 152.75/85 in comparison to its previous weeks closing levels of Rs. 152.65/75 on the back of importer dollar demand.

The daily USD/LKR average traded volume for the three days of the week stood at $ 69.26 million.Some of the forward dollar rates that prevailed in the market were one month – 153.40/50; three months – 155.10/20 and six months – 157.55/65.