Monday Dec 16, 2024
Monday Dec 16, 2024
Monday, 2 December 2024 02:50 - - {{hitsCtrl.values.hits}}
By Wealth Trust Securities
The secondary bond market last week started off slow but quickly changed gears and rallied midweek. A buying frenzy saw yields plummet to hit fresh lows, on the back of strong demand, following Sri Lanka’s launch of an exchange for its outstanding international sovereign bonds, the resumption of monetary easing by the Central Bank and the bullish outcomes at the two primary auctions. As such trading activity and transaction volumes were seen at elevated levels. However, as the week progressed profit taking saw yields pushed back up, partially reversing some of the gains from the recent bull run. Activity and transaction volumes began to moderate as yields were seen consolidating at the newly established levels, supported by renewed buying interest that kept a cap on rates. Despite these fluctuations, two-way quotes were seen closing significantly lower on a week-on week basis, which resulted in a parallel downward shift of the yield curve.
Accordingly, the yield on 15.12.27 bond was seen moving down from opening highs to hit intraweek lows of 10.93%-10.20%, before moving back up to settle at the closing two-way quotes of 10.25%/10.35%. The rest of the yield curve followed suit, with a similar trading pattern observed across maturities. The 01.05.28 maturity settled at the closing two-way of 10.48%/10.52%, subsequent to trading between the intraweek highs and lows of 11.15%-10.45%. The 15.09.29 maturity closed at the rates of 10.75%/10.85%, subsequent to trading between the intraweek highs and lows of 11.35%-10.80%.
The Central Bank of Sri Lanka last week delivered two policy actions back-to-back. Firstly, it was announced that the CBSL would implement a single policy interest rate mechanism, designating the new ‘Overnight Policy Rate’ (OPR) as its primary monetary tool, replacing the Standing Lending and Deposit Facility Rates (SLFR/SDFR). As per the official press release it was stated that the CBSL will target to maintain the average weighted call money rate (AWCMR) at or around the announced OPR.
Secondly, at the 6th and Final Monetary Policy Review for 2024 it was announced that the OPR would be at 8 %, an effective 50 bps reduction from the AWCMR prevailing at that time. In addition, it was stated that the Standing Facilities would be maintained at a +/- 50 Bps margin to the OPR. Accordingly, the SLFR and SDFR were reduced to 8.50% and 7.50% respectively, a 75 Bps reduction. As such the cumulative reduction in the standing facilities stands at 800 basis points since the current easing cycle began in June 2023.
At the weekly Treasury bill auction conducted last Wednesday (27 November), weighted average rates were seen declining steeply following the monetary policy announcement. This marked the third consecutive week where rates were seen declining across the board where the weighted average rate on the 91-day tenor decreased by 57 basis points to 8.73%, the 182-day tenor by 63 basis points to 8.97%, and the 364-day tenor by 70 basis points to 9.08%. Total bids received exceeded the offered amount by 2.85 times, and the entire Rs 125 billion on offer was successfully raised at the 1st phase.
The Rs. 205 billion Treasury bond auction held last Thursday (28 November) achieved a bullish result, with bids exceeding the offered amount by 2.37 times, an impressive feat given the scale of the auction. All maturities were fully subscribed in the first phase in competitive bidding,
Rs. 50 billion raised at the weighted average rate 11.40%.
For the week ending 28 November, the foreign holdings in Sri Lankan rupee-denominated Treasury securities saw a net inflow of Rs. 2.86 billion. This marked the eleventh consecutive week of positive inflows. As a result, total foreign holdings reached Rs. 58.41 billion.
The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged at Rs. 45.10 billion.
In money markets, total outstanding liquidity increased to Rs. 146.910 billion as at the week ending 29 November, up from Rs. 93.29 billion recorded the previous week. The Domestic Operations Department (DOD) of Central Bank injected liquidity during the week by way of overnight reverse repo auctions and a 7-day term reverse repo auctions at weighted average rates of 8.08% to 8.70% respectively. The weighted average interest rate on call money and repo ranged between 8.15% to 8.55% and 8.20% to 8.68% respectively.
The Central Bank of Sri Lankas (CBSL) holding of Government Securities was registered at Rs. 2,515.62 billion as at 29 November 2024, unchanged from the previous week’s level.
In the Forex market, the USD/LKR rate on spot contracts was seen appreciating, to close the week at Rs. 290.65/290.75 as against its previous week’s closing level of
Rs. 291/291.10 and subsequent to trading at a high of Rs. 290.60 and a low of Rs. 291.22.
The daily USD/LKR average traded volume for the first four trading days of the week stood at
$ 92.44 million.
(References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)
