Bond market sentiment continues to remain bearish

By Wealth Trust Securities

The US Federal Reserve decision to increase its interest rate by 25 basis points, the total accepted amount falling short of the total offered amount for an 11th consecutive week at the weekly Treasury bill auction coupled with expectations of primary Treasury bond auctions in the coming weeks in lieu of a Rs. 72.8 billion bond maturity due on 1 January 2017 led to the sentiment in the secondary bond market remaining bearish during the shortened trading week ending 16 December.  

This intern saw activity in the secondary bond market slowing down considerably with limited amount of trades taking place on the two 2018 maturities (i.e. 15.07.18 and 15.11.18), the two 2024 maturities (i.e. 01.01.24 and 01.08.245), the 01.08.25 and 01.09.28 maturities within the range of 11.30% to 11.40%, 12.45% to 12.55%, 12.63% to 12.65% and 12.90% to 12.91% respectively. Meanwhile foreign selling in to Rupee bonds continued for a ninth consecutive week, recording an outflow of Rs. 6.8 billion for the week ending 14 December. 

In money markets, the overnight call money and repo rates increased marginally during the week to average at 8.42% and 8.65% respectively for the week as the average net liquidity shortfall increased further to Rs. 57.71 billion during the week. The OMO department of Central Bank conducted auctions for outright purchase of bills in order to inject liquidity into the system totalling an amount of Rs. 8.9 billion at weighed averages ranging from 9.66% to 9.95% for tenures between 238 days to 287 days. 

Rupee deprecates further  

The active spot next contract was seen dipping further during the week to close the week at Rs. 149.55/65 against its previous day’s closing of Rs. 148.90/92 on the back of the FED rate hike and importer demand. 

The daily USD/LKR average traded volume for the first two days of the week stood at $ 29.04 million. 

Given are some forward dollar rates that prevailed in the market: one month – 150.30/45; three months – 151.80/10; six months – 154.15/35.