Foreign holding in rupee bond turns negative for the first time in twelve weeks

By Wealth Trust Securities

The foreign holding in Sri Lankan Rupee bonds recorded at outflow for the first time in twelve (12) weeks during the week ending 19 October, to the tune of Rs. 8.79 billion. Considerable foreign selling interest mainly in the short end to the belly end of the yield curve saw yields on the three year maturity of 15.09.2019, the four year maturity of 01.05.2020 and the five year maturity of 01.03.2021 increase by 20 basis points (bp), 13 bp and 18 bp respectively week on week to highs of 11.55%, 11.70% and 11.75%. The outcome of the weekly Treasury bill auction, where weighted averages were seen increasing for the first time in eight weeks was seen contributing to this development as well. However, buying interest on the long end of the curve, mainly on the 01.08.2026 and the 15.05.2030 maturities saw it change hands within the range of 11.90% to 11.95% and 12.05% to 12.15% respectively during the week which in turn led to the rare phenomenon of a flatting and a somewhat distorted yield curve.  

In the secondary bill market, selling interest throughout the week saw April 2017 and August 2017 maturities change hands within the range of 9.65% to 9.75% and 10.20% to 10.35% respectively.

In money markets, liquidity was seen increasing for a second consecutive week as the net shortfall decreased to a weekly average of Rs. 40.88 billion against its previous week’s average of Rs. 44.25 billion. The Open Market Operations (OMO) Department of Central Bank was seen injecting liquidity throughout the week by way of reverse repo auctions as call money remained stagnant to average 8.42% for the week while repo averaged 8.75%.

Rupee dips during the week

Foreign selling in rupee bonds coupled with importer demand saw the USD/LKR rate dip to Rs. 147.50/60 during the week on its spot next contract against its previous weeks closing of Rs. 146.98/03. Some of the forward dollar rates that prevailed in the market were 1 Month - 147.65/75; 3 Months -  150.15/30 and 6 Months - 152.45/65.