Secondary bond yields consolidate during holiday week

• T-bill rates continue to decline at auctions; demand extends to second phase
• Foreign holdings in Rupee treasuries records sizeable net inflow; crosses Rs. 70 b and hits over six-month high
• Money market liquidity decreases
• Rupee depreciates

By Wealth Trust Securities

The secondary bond market saw yields enter a consolidation phase during the holiday-shortened trading week ending 17 January. 

Market activity remained range-bound, with yields moving sideways and fluctuating in a narrow band throughout the period. As a result, by the end of the week, yields closed broadly steady. 

The notable exception were the 2026 tenors that bucked the trend and saw yields consistently decline during the week with the 01.06.26 and 15.12.26 maturities seen moving down the ranges of 9.10%-8.90% and 9.40%-9.20% respectively. 

The 15.09.27 and 15.10.27 maturities were seen trading within the range of 9.87%-9.80%. The early 2028 tenor 15.02.28 and 15.03.28 maturities were seen trading within the range of 10.20%-10.10%. The mid-2028 tenor 01.05.28 and 01.07.28 were seen changing hands within the ranges of 10.32%-10.26% and 10.38%-10.35% respectively. The late-2028 tenor 15.10.28 and 15.12.28 maturities were seen transacting at the rates of 10.40% and 10.45% respectively.

At the weekly Treasury bill auction conducted last Wednesday (15 January 2025), weighted average rates declined across all three maturities for the sixth consecutive week. As such rates were seen continuing on a downward trajectory, with a reduction in yields observed on at least one tenor over the last 10 weeks. Accordingly, the weighted average rates on the 91-day tenor dropped by 14 basis points to 8.33%, the 182-day tenor by 16 basis points to 8.44% and the 364-day tenor by 10 basis points to 8.80%. Total bids received exceeded the offered amount by 2.98 times, and the entire Rs. 107.00 billion on offer was successfully raised at the first phase in competitive bidding. This prompted the opening of the second phase across all three tenors, which was also heavily oversubscribed. An additional amount of Rs. 10.70 billion, being the maximum offered, out of a total market subscription of a staggering Rs. 126.65 billion was raised at the second phase.

For the week ending 16 January 2025, the foreign holdings in Sri Lankan rupee-denominated Treasury securities saw a net inflow, following two consecutive weeks of outflows, amounting to Rs. 5.00 billion. As a result, total foreign holdings were seen increasing to Rs. 72.23 billion, moving above Rs 70 billion for the first time since late June last year.

The daily secondary market Treasury bond/bill transacted volumes for the first two days of the week averaged at Rs. 46.82 billion. 

In money markets, the total outstanding liquidity surplus decreased to Rs. 111.30 billion as at the week ending 10 January, from Rs. 130.26 billion recorded the previous week. The Domestic Operations Department (DOD) of Central Bank injected liquidity during the week by way of a six-day term reverse repo auctions at weighted average rate of 8.07% respectively. The weighted average interest rate on call money and repo were recorded at 8.00% and 8.06% respectively.  

The Central Bank of Sri Lanka’s (CBSL) holding of Government Securities was registered at Rs. 2,511.92 billion as at 17 January 2025, down from the previous week’s closing level of Rs. 2,515.62. 

Forex market

In the forex market, the USD/LKR rate on spot contracts was seen depreciating, to close the week at Rs. 296.40/296.60 as against its previous week’s closing level of Rs. 294.70/294.95 and subsequent to trading at a high of Rs. 295.00 and a low of Rs. 296.95.  The daily USD/LKR average traded volume for the first two trading days of the week stood at $ 102.57 million. 

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