Bond markets remain bullish following FOMC’s surprise decision

Monday, 23 September 2013 00:55 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Following the NSB dollar bond issue, rupee bond markets continued to remain bullish for the week ending 20 September due to the surprise decision by the Federal Open Market Committee (FOMC) to continue with its monthly bond buying program of $ 85 billion against market expectations of a tapering of around $ 10 to $ 15 billion. As emerging market equities and bonds rallied following the FOMC announcement, the liquid five-year maturity (i.e. 1 April 2018) was the main focus once again as it was seen hitting a two week low of 11.80% on Friday against a mid-week high of 11.94% and closed the week at levels of 11.84/87 on profit taking.

In addition, the liquid two-year duration (i.e. 15 July 2015) was seen changing hands within the range of 11.15% to 11.25% during the week while limited amounts on the eight year maturity was traded within the range of 11.85% to 11.95%. Furthermore, the surge in liquidity on Wednesday saw demand for short term secondary market bills and bonds increase towards the latter part of the week as maturities close to six month durations were seen changing hands within the range of 10.10% to 10.30%, June/July/August 2014 maturities within the range of 10.45% to 10.50%, 10.48% to 10.53% and 10.51% to 10.54% respectively. Meanwhile in money markets, surplus liquidity surged on Wednesday to a two year high of Rs. 62 billion following the part conversion of the NSB dollar bond proceeds. This in turn helped overnight call money and Repo rates to remain steady during the week within the range of 8.40% to 8.65% and 8.00% to 8.35% respectively. The Open Markets Operations (OMO) department of the Central Bank was seen conducting daily and seven-day Repo auctions during the week in order to drain out excess liquidity from the

system at steady weighted averages of 7.09/15 and 7.96/97 respectively. Rupee gains marginally during the week The rupee on spot contracts was seen closing the week at levels of Rs. 132.15/20, marginally higher from its previous week’s close of Rs. 132.20/25 on the back of lesser importer demand. In addition, spot next contracts were seen closing the week higher as well at Rs. 132.18/22 subsequent to hitting a weekly low of Rs. 132.42 on Wednesday. The total USD/LKR traded volume for the first three days of this week stood at $ 75.55 million. Some of the forward dollar rates that prevailed in the market were 1-Month: Rs. 132.91, 3-Months: Rs. 134.48 and 6-Months: Rs. 137.38.