Activity in secondary bond and bill markets dries up as policy announcement brought forward

By Wealthtrust Securities

Activity in secondary bond and bill markets moderated towards the latter part of the week due to the ‘wait and see’ approach adopted by most market participants ahead of the monthly policy meeting for February, which has been brought forward to 12 February against its original scheduled date of 15 February.

During the week, the 364 day bill weighted average remained steady for the first time in nine weeks against market expectation which in turn saw secondary market bond yields increase marginally subsequent to the auction. The two liquid five year maturities (i.e. 15 August 2018 and 1 April 2018) increased from weekly lows of 10.80% and 10.83% respectively at the beginning of the week to highs of 10.90% and 10.92% towards the latter part of the week.

A limited amount of activity was witnessed on the longer durations as well, with the six year bond closing the week at levels of 11.40/55%, eight year at 11.45/50%, nine year at 11.80/85% and the 15 year was seen at levels of 12.15/35%.

Furthermore activity on secondary market bills remained throughout the week, mainly on the 364 day bill at levels 0f 11.03% to 11.08%. The first half of the yield curve continued to remain inverted with the two to five year bond yields remaining lower than the 364 day bill yields.

Given are the closing, secondary market yields for the most frequently traded maturities.

Liquidity drops during the week

Meanwhile in money market, surplus liquidity decreased during the week due to the combinations of a Rs. 10 billion maturity of a term reverse repo and a further Rs. 11 billion been mopped up by outright sales of bills and a term repo auction.

Despite attempts to control surplus liquidity which is inflationary in nature, surplus liquidity closed the week at high of Rs. 15.21 billion which intern saw overnight call money and repo rates remain steady to average 9.59% and 8.77% respectively for the week.

Rupee appreciates during the week

The USD/LKR rate gained marginally during the week to close the week at levels of Rs. 126.28 against its previous week’s closing of Rs. 126.40, mainly due to exporters converting on forward dollar contracts. The green back was seen appreciating to weekly high of Rs. 125.90 on 7 February.

The total dollar/rupee volume for the previous day (7 February 2013) was US$ 49.45 million. Given are some forward dollar rates that prevailed in the market; one month – 127.05; three months – 128.93; and six months – 131.73.