Yield curve records parallel shift downward for second consecutive week

• Foreign selling in rupee bonds exceeds Rs. 10 b
• Money market liquidity continues to improve
• Rupee appreciates 
  
   

By Wealth Trust Securities

The bullish sentiment in the secondary bond market continued during the week ending 10 May for a second consecutive week, driven by aggressive trading demand and a further increase in liquidity in the money market helped by a slowdown in foreign selling towards the latter part of the week.  

The steep decrease in weighted averages at the weekly Treasury bill auction added further momentum to the bull run.

The overall yield curve witnessed a parallel shift downward for a second consecutive week with yields on the liquid maturities of 01.08.21, 15.03.22, 15.03.23, 15.03.24, 15.03.25, 01.08.26, 15.01.27 and 01.05.29 hitting intraweek lows of 9.75%, 9.95%, 10.25%, 10.42%, 10.65%, 10.70%, 10.72% and 10.95% respectively against its previous weeks closing levels of 10.00/10, 10.25/32, 10.50/55, 10.72/75, 10.80/90, 10.88/92, 10.95/97 and 11.05/08. 

Furthermore, high demand for secondary market bills saw the latest one year bill changing hands at a low of 9.15% as well. Meanwhile, the foreign holding in Sri Lankan Rupee bonds recorded an outflow of Rs. 10.80 billion for the week ending 8 May, exceeding the Rs. 10 billion mark for the first time since 26 December 2018.

The daily secondary market Treasury bond/bill transacted volume for the first four days of the week averaged Rs. 12.68 billion. 

In money markets, the overall net liquidity surplus was seen increasing further to record Rs. 61.54 billion by the end of the week which led to Central Bank commencing Repo auctions in order to drain out liquidity for the first time since 6 September 2018.  

The Open Market Operations (OMO) Department of Central Bank was seen draining out liquidity during the week by way of overnight, two days, four days and seven days repo auctions at weighted averages ranging from 8.38% to 8.54%. Overnight call money and repo rates averaged 8.38% and 8.54% respectively for the week.

 Rupee gains during the week

The rupee on spot contracts closed the week higher at Rs.176.30/40 against its previous week’s closing levels of Rs. 177.30/50 on the back of selling interest by banks on forward and spot contracts. 

The daily USD/LKR average traded volume for the first four days of the week stood at $ 52.63 million. 

Some of the forward dollar rates that prevailed in the market were one month – 177.20/40; three months – 179.00/40; and six months – 181.70/10.