Volatile week ends on positive note

• Foreign investors in LKR bonds continue to exit 
• Parallel shift downward of overall yield curve

By Wealth Trust Securities

The secondary bond market turned bullish during the week ending 6 March 2020 as yields were seen decreasing towards the latter part of the week, reversing an upward trend witnessed during the early part of the week. 

Considerable local buying interest was seen outweighing foreign selling across the yield curve as yields on the maturities of 2021’s (i.e. 1.8.21 and 15.12.21), 15.3.22, 2023s (i.e. 15.3.23, 15.5.23 and 1.9.23), 2024s (i.e. 1.1.24, 15.6.24, 1.8.24 and 15.9.24), and 15.10.27 were seen dipping to weekly lows of 8.50%, 8.70%, 8.93%, 9.10%, 9.20%, 9.22%, 9.37%, 9.40%, 9.55%, 9.40% and 9.59% respectively against its weeks highs of 8.90%, 9.05%, 9.14%, 9.32%, 9.40%, 9.42%, 9.70%, 9.72%, 9.78%, 9.68% and 9.85%. This resulted in a sizable parallel shift downwards of the overall yield curve, week on week. The same buying momentum was seen flowing over to the secondary bill market as November 2020 maturities changed hands down to a low of 8.15%.  

The positive sentiment was supported by the Federal Reserve’s surprise interest rate cut, indications of a fresh Chinese syndicated loan and the decrease in weighted averages at the weekly Treasury bill auction, where the market favorite 364 day maturity recorded a drop of 12 basis points to 8.46%. 

A sixth consecutive week of foreign outflows from the rupee bond market saw its holding reduce by a further Rs. 8.24 billion for the week ending 4 March 2019 while its overall holding was at Rs. 83 billion. 

The daily secondary market Treasury bond/bill transacted volumes for the first four days of the week averaged at Rs. 13.89 billion.   

In money markets, the weighted average yields on overnight call money and repo rates averaged 6.96% and 7.02% respectively for the week as the Domestic Operations Department (DOD) of the Central Bank was seen draining out liquidity during the week on an overnight, four-, seven- and eight-day basis at weighted average yields ranging from 6.97% to 7.16%. The overall liquidity in the system stood at Rs. 40.94 billion. 

Rupee closes mostly unchanged  

In the Forex market, the USD/LKR rate on spot contracts closed the week mostly unchanged at Rs. 181.85/00 in comparison to its previous weeks closing subsequent to dipping to an intraweek low of Rs. 182.29. 

The daily USD/LKR average traded volume during the first four days of the week stood at $ 91.28 million.  

Some of the forward dollar rates that prevailed in the market were one month - 182.40/60; three months - 183.35/65 and six months - 184.90/20.

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