A steep parallel shift downwards on the yield curve witnessed during the week

Monday, 21 July 2014 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Substantial buying interest across the yield curve during the week ending 18 July saw secondary market bond yields dip reflecting a steep parallel shift downwards on the yield curve.

Volumes changing hands were at its highest levels as yields on the longer end of the curve reflected the sharpest drops of 86 basis points (bp) on the 15-year duration of 1 May 2029 to a low of 9.70%, 77 bp on the nine-and-a-half-year duration of 1 January 2024 to a low of 8.55%, 71 bp on the eight-year duration of 1 July 2022 to a low of 8.35% and 72 bp on the seven-year duration of 1 May 2021 to a low of 8.05%. This was closely followed by the five-year duration of 1 July 2019 dipping by 45 bp to a low of 7.68%, the two four-year durations (i.e. 1 April 2018 and 15 August 2018) by 39 bp and 43 bp respectively to lows of 7.45% and 7.50% and the three-year duration of 15 May 2017 by 25 bp to a low of 7.20%. In secondary bill markets, the 364 day bill was seen changing hands within the range of 6.60% to 6.65% post auction. The bullish sentiment was supported by the outcome of last week’s Treasury bill auction, where weighted averages continued to slide with the 364 day bill reflecting its sharpest drop in 26 weeks of 12 bp to 6.79% while the 91 day and 182 day bills dipped by 01 bp and 04 bp respectively to 6.46% and 6.59%. Renewed speculation on the outcome of next month’s monitory policy announcement was seen adding further momentum to this sentiment. Surplus liquidity was seen increasing during the week to average Rs. 55.87 billion against its previous week’s average of Rs. 30.32 b as call money and repo rates were seen dipping to average 6.79% and 6.51% respectively. Rupee dips marginally during the week The rupee was seen losing ground marginally towards the latter part of last week to close the week at Rs. 130.28/30 on the back of importer demand subsequent to appreciating to a one year high of Rs. 130.18/20 during the early part of the week. The daily average USD/LKR traded volume for the first four days of last week was $ 74.24 million. Some of the closing forward dollar rates that prevailed in the market were: one month – 130.45; three – 131.14; and six months – 132.21.