Parallel shift downwards of overall yield curve witnessed ahead of monitory policy announcement

Monday, 17 February 2014 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Yields in secondary bond markets decreased during the week ending 13 February ahead of this month’s monitory policy announcement due on 17 February 2014. During the week, weighted averages (WAvgs) on the 91 day and 182 day bill maturities decreased by five basis points (bp) and eight bp respectively to 17 year lows of 6.77% and 6.92% at its weekly Treasury bill auction, while the WAvg on the 364 day bill remained steady at 7.10%.

The two liquid 2018 maturities (i.e. 1 April 2018 and 15 August 2018) decreased from weekly highs of 9.20% and 9.23% respectively at the beginning of the week to lows of 8.90% and 9.00% towards the latter part of the week in the absence of foreign selling on rupee bonds and buying interest by local market participants. In addition, a considerable amount of activity was witnessed on shorter durations as well, with maturities of 1 August 2015, 1 April 2016, 1 August 2016 and 1 January 2017 changing hands within the range of 7.25% to 7.45%, 7.50% to 7.80%, 7.70% to 8.00% and 8.00% to 8.40% respectively during the week. Furthermore activity was witnessed

on the longer durations as well, as maturities of 15 January 2019 and 1 May 2021 was seen trading at levels 9.10% to 9.20% and 9.60% to 9.90% respectively. However interestingly, activity in secondary bill markets dried up with the 182 day bill been quoted at 8.80/90 and the 364 day at 7.05/15 respectively. This could be due to the high yields fetched at the Open Market Operations (OMO) for term Repurchases transactions according to market sources which in turn reduced the relative attractiveness of the benchmark maturities. Meanwhile in money markets, overnight call money and repo rates increased during the week to average 6.89% and 6.48% respectively against its last week’s levels of 6.75% and 6.22% due to WAvgs on the term repo auctions, which are conducted by the Open Market Operations (OMO) department of Central Bank increasing. Liquidity was drained out by way of four term repo auctions during the week, totaling Rs. 40.06 b for durations ranging from three days to 78 days at WAvgs of 6.57% to 6.80%. Furthermore, an additional Rs. 40.55 b was mopped up for eight days as well at a WAvgs of 6.65% on Friday, which in turn will see liquidity dip further on Monday (17 February). The week closed with a surplus liquidity of Rs. 79.97 billion. The USD/LKR rate lost ground marginally during the week to close the week at levels of Rs. 130.84/87 against its previous week’s closing of 130.75/78, mainly due to importer led demand and equity sales by foreign holders at the Colombo Bourse. The daily average USD/LKR traded volume for the first three days of the week was at US$ 67.53 million. Some of the forward dollar rates that prevailed in the market were one month – 131.41; three months – 132.36; and six months – 133.76.