Parallel shift downwards of yield curve witnessed for 2nd consecutive week

• Liquidity increase to 10-year high

By Wealth Trust Securities The overall yield curve witnessed a considerable parallel shift downwards for a second consecutive week on the back of sizeable buying interest and the outcome of the primary auctions during the week ending 24 April. The start of the week witnessed a bullish outcome on the Treasury bond auctions with the 3.01 year maturity of 1 June 2018 recording a weighted average of 8.15% while all bids for the 7.02 year maturity of 1 July 2022 were rejected. This was followed by the weighted averages at the weekly Treasury bill auction declining across all three maturities as well to record 6.19%, 6.35% and 6.50%. The downward trend in secondary market yields was further supported by the increase in overnight surplus liquidity to a 10-year high of Rs. 149.35 billion and the news of the $ 1.5 billion swap between the Central Bank of Sri Lanka and the India Reserve Bank. Yields on the liquid maturities of 15 May 2017, 1 June 2018, 15 September 2019, 1 January 2020, 1 August 2021, 1 July 2022, 1 September 2023, 1 January 2024 and 15 March 2025 were seen dipping to lows of 7.00%, 7.68%, 8.04%, 8.20%, 8.34%, 8.35%, 8.57%, 8.65% and 9.00% respectively against its previous weeks closing levels of 7.50/58, 8.25/28, 8.42/46, 8.70/75, 8.85/90, 8.85/90, 9.33/40, 9.65/75 and 9.70/80. In addition, a limited amount of activity was witnessed on the longer end of the curve as well, with the 20-year maturity of 15 March 2035 changing hands within the range of 10.15% to 10.35%. In money markets, overnight call money and repo rates decreased further during the week ending 24 April to average 6.16% and 6.02% respectively against its previous week averages of 6.20% and 6.23% as surplus liquidity increased during the week to average of Rs. 131.62 billion against its previous week’s average of Rs. 95.47 billion. The Open Market Operations (OMO) Department was seen mopping up excess liquidity for the first time in one month by way of three auctions for outright sales of Treasury bills. The auction drained an amount of Rs. 25 billion in total at weighted average of 5.90% for 32 days, 5.97% for 53 days and 6.04% for 67 days.   Activity shifts to one month forward contracts in forex markets Meanwhile in Forex markets, activity was seen shifting to one month forward contracts during the week as it closed the week at Rs.134.25/50. The daily average USD/LKR traded volume for the first four trading days of the week stood at $ 57.72 million. Given are some forward dollar rates that prevailed in the market: three months – 135.20; six months – 136.90.