Bond markets end the week on panic mode

• Special Standing Deposit Facility rate withdrawn
• 30-year bond yield spikes at auction
• Inflation dips to all time low levels

By Wealth Trust Securities The secondary bond market closed week ending 27 February on panic mode as yields was seen moving up considerably during the week. Firstly, the outcome of the 30-year bond auction at where its weighted average was seen spiking up considerably to 11.73% against market expectations followed by the withdrawal of the special standing deposit facility of 5.00% was seen as the reasons behind this according to market sources. At the auction, a total amount of Rs. 10 billion was accepted against the total offered amount of Rs. 1 billion on the newly issued 30-year maturity of 1 March 2045. In secondary bond market trading, the overall yield curve reflected a significant parallel shift upwards during the week ending 27 February on the back of continuous selling interest towards the latter part of the week. During the early part of the week, yields were seen edging down following the monitory policy announcement for the month of February at where policy rates were held steady for a thirteenth (13th) consecutive month at 6.50% and 8.00% while access to the Standing Deposit Facility (SDF) remained rationalised. Activity centered on the two year maturity of 15 May 2017, the two three year maturities (1 April 2018 and 15 August 2018) and the seven year maturity of 1 July 2022 as its yields were seen dipping to weekly lows of 6.98%, 7.16%, 7.22% and 7.76% respectively. However, selling interest from these levels onwards saw yields edge up to weekly highs of 7.20%, 7.60%, 7.75% and 8.20%. This was despite the positive outcome on Inflation for the month of February, at where its point to point and annualised averages were seen declining to all time low levels of 0.60% and 2.90% on the Index which carries a base year of 2007. In addition, secondary market bills were seen trading well above its weighted averages, with the 182 day and 364 day bills been offered at highs of 6.20% and 6.30%. Meanwhile in money markets, Overnight call money and repo rates remained steady to average 6.04% and 5.66% respectively for the week ending 27 February as the average surplus liquidity stood at Rs 25.29 billion during the week. The Open Market Operations (OMO) Department of Central Bank continued to mop up liquidity during the week by way of overnight to thirty four day term repo auctions at weighted averages ranging from 5.90% to 6.28% in addition to outright sales of Treasury bills at weighted averages of 5.86%, 5.91% each for maturities of 07,21 and 42 days.   Rupee dips during the week Active one week forward dollar/rupee contracts depreciated marginally during the week to close the week at Rs. 133.45/55 while spot and spot next quotes remained steady at 132.90/10 and 132.92/10 respectively. The daily average USD/LKR traded volume for the first four trading days of the week stood at $ 74.15 million. Some of the forward dollar rates that prevailed in the market were: one month – 134.00; three months – 135.00; and six months – 136.20.