Momentum changes as Sri Lanka plans to issue sovereign bond

• Yield curve reflects a downward trend for the first time in 5 weeks

By Wealth Trust Securities

Following the announcement of monetary policy decision, where rates held unchanged and the Sri Lanka plans on issuing sovereign bond up to $ 1.5 billion in addition to a syndicated loan of up to $ 1 billion, the activity in secondary bond markets increased during the shortened week with yields treading downwards for the first time in five weeks. 

The positive sentiment was further supported by the cancellation of the Treasury bond auction scheduled to be held on 9 February. 

The more liquid two five year maturities (01.05.2021 and 01.08.2021) reflected the highest amount of activity during the week to lows of 12.40% and 12.45% respectively in comparison to their last week’s closing levels 12.60/70 an 12.60/75 respectively. 

The yields on the maturities of 15.11.2018 and 01.07.2019 decline as well during the week to lows of 11.50% and 11.90% respectively. This was despite the outcome of the weekly Treasury bill auction where weighted averages were seen increasing while the foreign holding in Rupee bonds continued to decrease, recording its fifth consecutive week of outflows. 

The week ending 8 February 2017 witnessed an outflow of Rs. 4.7 billion to record a total value of Rs. 229.20 billion.

In money markets, the overnight call money and repo rates increased marginally during the week to average 8.43% each against its previous weeks’ averages of 8.40% and 8.42% as average net surplus liquidity in the market decreased further to Rs. 17.11 billion for the week. 

The Open Market Operations (OMO) Department of Central Bank was seen mopping out liquidity during the week by way of overnight repo auctions at weighted averages of 7.49% to 7.50%, except for 9 February where surplus liquidity was seen dipping to a short of  Rs. 0.99 billion for the first-time after 20 December 2016. 

Rupee closes the week steady

 The dollar rupee rate on active two weeks and one month forward contracts lost ground during the early part of the week to a low of Rs. 151.25/30 and Rs. 151.65/70 on the back of importer demand. However it gained most of its lost ground during the latter part of the week to close the week at Rs. 151.17/25 and Rs. 151.55/65 on the back of news on sovereign bond issue.

 The daily USD/LKR average traded volume for the first three days of the week stood at $ 61.56 million. 

Some of the forward dollar rates that prevailed in the market were three months – 153.45/55 and six months – 156.02/10.