Foreign selling interest returns to bond market

• Market yields adjust in a curve flattening move

By Wealth Trust Securities

Foreign selling interest was seen returning to the bond market yesterday following the holiday season. Local buying interest during the morning hours of trading was seen complementing foreign selling as yields dipped on the maturities of 15.09.19, 01.03.21, 01.09.23 and 01.08.24 to daily lows of 11.50%, 11.97%, 12.10% and 12.15% respectively. 

In addition, late 2018 maturities were seen changing hands within the range of 11.05% to 11.20% while the yield on the 01.08.21 maturity was seen increasing to 12.15% against its opening lows of 12.09% on the back of foreign selling.

Meanwhile, yields on the four-year maturities of 2021 to the nine-year maturities of 2026 were seen bunching up yesterday, developing a rare phenomenon of a flattening yield curve on the belly end to the long end.

This was ahead of today’s weekly bill auction, where a total amount of Rs. 31.5 billion will be on offer consisting of Rs. 4.5 billion on the 91 day, Rs. 15 billion on the 182 day and Rs. 12 billion on the 364 day maturities. At last week’s auction, the weighted averages increased across all three maturities to 8.72%, 9.63% and 10.17% respectively.

In money markets, the Central Bank’s Open Market Operations (OMO) Department was seen mopping up excess liquidity by way of a two term repo auction. The auctions drained out a total amount of Rs. 36.00 billion at weighted averages of 7.43% for seven days and 7.44% for nine days. Further, an amount of Rs. 63.00 billion was mopped up on an overnight basis at a weighted average of 7.42% as the net surplus liquidity increased to Rs. 121.61 billion yesterday. Overnight call money and repo rates decreased marginally to average 8.39% and 8.62% respectively.

 Rupee continues to slide

 The USD/LKR rate on the spot next, one week and one month forward contracts were seen depreciating further yesterday to close the day at Rs. 150.05/20, Rs. 150.25/40 and Rs. 150.95/15 respectively against its previous week’s closing of Rs. 150.02/08, Rs. 150.15/25 and Rs. 150.85/00 on the back of importer demand and foreign selling in rupee bonds.

The total USD/LKR traded volume for 2 January 2017 was $ 49.05 million.

Some of the forward USD/LKR rates that prevailed in the market were three months - 152.60/80 and six months - 154.90/00.