Bond market sentiment turns bearish on tax policy uncertainties

• Yields increase ahead of weekly bill auction

By Wealth Trust Securities

The proposed new Inland Revenue Bill and its accounting policy changes with regard to the government securities market saw the sentiment in the secondary bond market turn bearish yesterday as activity came to a standstill. 

Yields on two-way quotes were seen increasing on the back of limited trades across the yield curve.

This was ahead of today’s weekly Treasury bill auction which will have on offer a total amount of Rs. 29.5 billion, consisting of Rs. 3 billion of the 91-day, Rs. 14.0 billion of the 182-day and Rs. 12.5 billion of the 364-day maturities. At last week’s auction, weighted averages continued to decrease for a ninth consecutive week with the 182-day and 364-day maturities reflecting decreases of 1 and 3 basis points respectively to 10.29% and 10.47%. The weighted average on the 91-day remained steady at 9.60%. 

The total secondary market Treasury bond transacted volume for 23 June 2017 was Rs. 9.26 billion.

Meanwhile, in money markets, overnight call money and repo rates remained steady to average 8.75% and 8.96% respectively as the Open Market Operations (OMO) Department of the Central Bank of Sri Lanka was seen injecting an amount of Rs. 30.99 billion on an overnight basis by way of a Reverse Repo auction at a weighted average of 8.74% in addition to Rs. 19.61 billion at its standing Lending Facility Rate of 8.75%. The net liquidity shortage stood at Rs. 49.43 billion with an amount of Rs. 1.17 billion being deposited at the Central Bank’s Standing Deposit Facility at the rate of 7.25%.

Rupee depreciates marginally   

In the Forex market, the USD/LKR rate on spot contracts was seen depreciating marginally to close the day at Rs. 153.32/37 in comparison to the previous day’s closing levels of Rs. 153.20/30 on the back of importer dollar demand.

The total USD/LKR traded volume for 23 June 2017 was $ 104.25 million. 

Some of the forward USD/LKR rates that prevailed in the market were one month - 154.32/38; three months - 156.20/30 and six months - 159.30/35.