Secondary market bond yields increase, demand at weekly Treasury bill auction reduces

• Foreign outflow for the first time in 20 weeks 
• Money market liquidity shortfall increases to Rs. 317.645 billion
• Rupee steady

By Wealth Trust Securities

The shortened trading week ending 28 June 2023 saw secondary market bond yields increasing driven by uncertainties on the final outcome of Domestic Debt Optimisation (DDO). This sentiment was further supported by the outcome of the weekly Treasury bill auction where the total subscribed amount was seen falling short of its total offered amount at phase I of the auction for the first time in 5 weeks. It accepted only an amount of Rs. 55.43 billion in total, against a total offered amount of Rs. 130 billion. 

The liquid maturities of 01.07.25. 15.05.26, two 2027s (i.e., 01.05.27 & 15.09.27) and 01.07.32 saw their yields increase to weekly highs of 28.50%, 27.50%, 26.00% each and 21.00% against its previous weeks closing level of 27.25/50, 25.40/00, 23.20/30 each and 20.25/00, reflecting an upward shift of the overall yield curve.

Meanwhile, the foreign holding in rupee bonds was seen reducing for the first time in 20 weeks to record an outflow of Rs. 2.93 billion for the week ending 27 June. 

The daily secondary market Treasury bond/bill transacted volumes for the first two trading days of the week averaged Rs. 15.55 billion.

In money markets, the total outstanding liquidity deficit increased to Rs. 317.645 billion by the end of the week against its previous week’s deficit of Rs. 230.02 billion while the Central Bank of Sri Lanka (CBSL) holding of Government Security remained mostly unchanged at Rs. 2,456.56 billion. The Domestic Operations Department (DOD) of the Central Bank continued to inject liquidity during the week by way of overnight to 7-day Reverse repo auctions at weighted average yields ranging from 13.67% to 14.00%.

In the Forex market, the USD/LKR rate on spot contracts was seen closing the week broadly unchanged at Rs. 306.50/308.00, subsequent to trading within the range of Rs. 307.00 to Rs. 310.00.

The daily USD/LKR average traded volume for the first two trading days of the week stood at $ 46.03 million.  

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