Parallel shift downwards of the overall yield curve witnessed during the week

Monday, 9 June 2014 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Feeding off the positive momentum that has been building up in bond markets over the past two weeks, primary and secondary market bond yields continued its downward slope during the week ending 6 June, reflecting a parallel shift downwards of the overall yield curve. The outcome of Inflation for the month of May and its future expectations coupled with speculation on the outcome of this month’s (June) monitory policy meeting was seen as the main drivers behind the bullish sentiment in bond markets according to market sources.

Activity remained very high across the yield curve with the liquid two three year maturities (i.e. 01.03.2017 & 15.05.2017) witnessing the sharpest drop of 31 basis points (bp) and 33 bp respectively week on week to lows of 7.63% and 7.64% closely followed by the seven year maturity of 1 May 2021 and the five-year maturity of 1 July 2019 by 26 bp and 20 bp respectively to lows of 9.35% and 8.73%. In addition, the two 2018 maturities (i.e. 01.04.2018 & 15.08.2018) reflected week on week drops of 17 bp and 19 bp respectively to lows 8.24% and 8.32% while the eight year maturity dipped by 10 bp to a low of 9.85%. Meanwhile demand for secondary market bills continued during the week, as the 364-day and 182-day maturities were seen been quoted at levels of 6.95/00 and 6.70/75 respectively, post its weekly auction. Meanwhile in money markets, Overnight call money and repo rates remained steady to average 6.96% and 6.52% for the week as average surplus liquidity in the system increased to Rs. 18.68 billion against its last week’s average of Rs. 15.14 billion. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of overnight to seventy seven days term repo auctions at weighted averages ranging from 6.54% to 6.84%.

Rupee gains marginally during the week The rupee closed the week marginally higher at Rs. 130.26/28 against its previous weeks closing of Rs. 130.35/38 on the back of export conversions outweighing importer demand. The daily average USD/LKR traded volume for the first four days of the week was at $ 75.82 million. Some of the forward dollar rates that prevailed in the market were 1 Month: Rs. 130.72, 3 Months: Rs. 131.57 and 6 Months: Rs. 132.72.