Demand for shorter tenure maturities continue during the week

Monday, 10 February 2014 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The momentum in secondary bond markets reversed towards the latter part of week against its increasing trend for the week ending 31 January and the beginning of last week on the belly end of the yield curve, in the absence of foreign selling on rupee bonds and the non-collateralisation of funds deposited at CBSL’s Standing Deposit Rate (SDR) of 6.50% by market participants with effect from 1 February. Foreign selling in rupee bonds during the early part of the week saw the liquid two 2018 maturities (i.e. 01.04.2018 & 15.08.2018) hit a weekly high of 9.40% but the lack of it towards the latter part of the week saw yields dip once again to close the week at levels of 9.18/22 and 9.25/30 respectively.

However due to the non-collateralization of CBSL’s SDR, demand at the shorter end of the yield curve continued throughout the week which reflected favourable at the weekly Treasury bill auction and continued to maintain an steepened yield curve as well. This in turn helped CBSL raise an additional Rs. 3.4 billion at the auction against its initial total offered amount of Rs. 12 billion despite all bids for the 91-day and 182-day maturities been rejected while the weighted average (WAvg) on the 364-day maturity dipped by four basis points (bp) to 7.10%. In line with this demand for the shorter durations of 2015 and 2016 bonds was evident at levels of 7.15% to 7.50% and 7.80% to 8.00% respectively while bills centering the 91-day, 182-day and 364-day maturities was seen changing hands within the range of 6.50% to 6.60%, 6.75% to 6.85% and 7.00% to 7.10% respectively.

As expected, excess liquidity in money markets spiked to a three year high of Rs. 107.16 on Monday 3 February following the Rs. 53.7 billion bond maturity on 1 February 2014 as money market rates hit over ten (10) year lows. However it was seen decreasing towards the later of the week to close the week at Rs. 79.11 billion as the Open Market Operations (OMO) department of Central Bank was seen mopping up liquidity on a term basis during the week by way of five term repo auctions, totalling Rs. 38.78 billion for durations ranging from 14-days to 64-days at WAvgs of 6.54% to 6.83%. Furthermore it drained out a volume of Rs. 56.53 billion for a period of six days as well at a WAvgs of 6.55% on Friday, which will see liquidity dip further on Monday (10). Call money was seeing averaging 6.75% for the week while Reo averaged 6.22%. Rupee closes the week steady The USD/LKR rate was seen closing the week steady at levels of Rs. 130.65/70 subsequent to hitting an intraweek low of Rs. 130.79, as export conversions and inward remittances were seen outpacing importer demand and demand for foreign selling in rupee bonds. The daily average USD/LKR traded volume for the first three days of the week was at $ 68.66 million. Some of the forward dollar rates that prevailed in the market were 1-Month: Rs. 131.05, 3-Months: Rs. 131.95 and 6-Months: Rs. 133.15.