Bond markets bullish despite postponement of policy announcement

By Wealth Trust Securities

The shortened week started with the success of the Treasury bond auction, at where the total accepted amount exceeded the total amount offered, as has been the trend in all primary auctions in recent weeks. This was then followed by the fruitful Treasury bill auction where the total accepted amount was 2.0 times more than its total offered amount as well.

The positive outcome on inflation during the week, at where the point to point dropped to a 12-month low of 6.4% and the annualised average remained unchanged at 8.80% for the first time in 11 months saw activity in secondary bond and bill markets pick up mainly on the liquid five-year maturity (i.e. 1 April 2018) and the 364-day bill as yields dropped to an intraweek low of 11.31% and 11.20% respectively.

Moreover the market remained resilient towards the later part of the week with the postponement of the much awaited monetary policy decision from 7 May to an immediate future date and the decline in market liquidity to a four month low.

Liquidity in money markets dropped to a four month low of Rs. 1.2 b on Friday as the Central Bank avoided conducting an overnight repo auction for the first time in three months. Furthermore CBSL’s discount window rate of 9.50% was accessed for the first time in four months as well for a volume of Rs. 5 b with an amount of Rs. 6.2 b being deposited at its Repo window rate of 7.50%.

Given are the closing, secondary market yields for the most frequently traded maturities.Liquidity dips to a four month low during the week

The drop in liquidity was mainly attributed to a considerable sell down of CBSL’s Treasury bill holding over the past few weeks. However Overnight Call money and Repo rates remained resilient at levels of 9.45%-9.60 % and 8.55%-8.80% respectively during the week.

Rupee gains during the week

On a more positive note the rupee appreciated during the week to a weekly high of Rs. 126.20 against its last week’s closing levels of Rs. 126.80/126.86. Selling interest on forward dollar contracts coupled with export conversions was seen as the main reasons behind this according to market sources.

The total USD/LKR traded volume for the first three days of this week stood at US$ 87.99 million. Given are some forward dollar rates that prevailed in the market: one month – 127.25; three months – 128.98; six months – 131.47.