Mixed signals keeps bond markets guessing

Monday, 5 January 2015 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The mixed signals given out during the week ending 2 January kept secondary bond markets guessing as long tenure bond yields were seen decreasing week on week while short tenure yields were seen increasing further.

The weighted average on the one year bill was seen increasing for a third consecutive week above 6.00% for the first time in 14 weeks while at the bond auctions the weighted averages recorded were well below secondary market rates. In addition, inflation for the month of December was seen increasing for the first time in five months as well on its point to point basis adding further uncertainty to the bearish sentiment. Buying interest during the early part of the week saw yields on the liquid maturities of 15 August 2018, 1 July 2019, 1 May 2021 and 1 July 2022 dip to weekly lows of 7.08%, 7.14%, 7.33% and 7.67% respectively against its week’s highs of 7.15%, 7.20%, 7.50% and 7.80%. Meanwhile, selling interest on short tenure bills saw yields on May, August and November 2015 maturities increase to levels of 5.75% to 5.85%, 5.80% to 5.90% and 5.95% to 6.05% respectively, reflecting a flatting out of the yield curve. In money markets, due to all commercial banks squaring off their books on 31 December coupled with most banks using the opting of accessing the standing deposit facility of 6.50% for the first three working days of a month, overnight call money and repo rates were seen increasing marginally during the week to average 6.19% and 5.86% respectively in comparison to its previous weeks averages of 6.01% and 5.51%. The average surplus liquidity dipped during the week to Rs. 26.60 billion as the Open Market Operations (OMO) Department of the Central Bank was seen mopping up liquidity during the week by way of three to 77 day term repo auctions at weighted averages ranging from 5.91% to 6.14%.

Rupee losses ground during the week The rupee on both spot next and next-next contracts was seen depreciating during the week to close the week at 132.25/30 and 132.26/32 respectively in comparison to its previous weeks of 132.99/02 and Rs. 131.99/05 on the back of renewed importer demand. The daily USD/LKR average traded volume for the first four days of the week stood at $ 43.43 million. Some of the forward dollar rates that prevailed in the market were: one month – 132.90; three months – 133.65; and six months – 134.85.