Primary auction rates continue to tumble ahead of inflation

Thursday, 30 April 2015 00:08 - - {{hitsCtrl.values.hits}}

CBSL/RBI swap deal to take effect today

As expected following the trend of the primary auctions over the past few weeks, the weighted averages at yesterday’s Treasury bond auctions were seen declining further. The Weighted Average (W. Avg) on the 9.11 year maturity of 15.03.25 was seen dipping as much as 105 basis points (1.05%) to 8.98% against its previous W. Avg of 10.03% while the shorter 3.01 year maturity of 01.06.2018 dipped by 19 basis points to 7.96% against its previous W. Avg of 8.15%. Nevertheless, in contrast to the outcome of the auctions, secondary market bond yields were seen closing the day higher yesterday following a dip in morning hours of trading. In morning hours of trading buying interest on the liquid maturities of 01.06.2018, 15.09.2019, 01.08.2021, 01.07.2022, 01.09.2023 and 15.03.2025 saw its yields hit intraday lows of 7.80%, 8.08%, 8.35%, 8.40%, 8.55% and 8.85% respectively. However, leading to the outcome of the auction and following it, yields were seen increasing marginally once again to hit intraday highs of 7.98%, 8.20%, 8.48%, 8.53%, 8.70% and 8.90% as volumes changing hands remained high. Nonetheless, the upward trend in yields was limited at these levels following the announcement by the Central Bank of Sri Lanka (CBSL), that the agreed swap deal of $ 400 million with the Reserve Bank of India (RBI) will take effect today and a further US $ 1.1 billion will be made available in due course. In addition, market participants were seen eagerly awaiting Inflation numbers for the month of April due today. In March, inflation on its point to point (P to P) was seen decreasing for a second consecutive month to 0.10% while its annualized average decreased for a consecutive twenty second (22) month to 2.5%. Meanwhile, in money markets, surplus liquidity was seen remaining high yesterday at Rs. 125.42 billion as overnight call money and repo rates remained steady to average 6.11% and 6.07% respectively. Rupee remains stable In Forex markets, the rupee on one month forward contract closed the day mostly unchanged at Rs. 134.80/95 yesterday. The total USD/LKR traded volume for 28 April was at $ 23.25 million. Some of the forward dollar rates that prevailed in the market were 3 Months - 135.90 and 6 Months - 137.50.

Rupee forwards steady on moral suasion amid imports

Reuters: Rupee forwards ended steady on Wednesday as the Central Bank’s moral suasion kept the local currency flat despite importer dollar demand, while dealers expect the rupee to remain under pressure due to lower interest rates. Dealers said the central bank, which has kept the spot rupee and all forwards up to one month steady through moral suasion, asked the banks not to trade one-month forwards above 134.80 per dollar, “As a result, three days above one month forwards picked up. The Central Bank is strictly controlling the market,” a currency dealer said on condition of anonymity. Actively traded three days above one-month forwards ended at 134.90/135.00 per dollar and one-month forwards ended steady at 134.80/135.00. “With interest rates falling, there will be an increasing downward pressure on the rupee if not for huge inflows. Yields on treasury bills fell 3 to 11 basis points (bps), extending their decline to 41-51 bps since the central bank cut key rates on 15 April. The Central Bank on Wednesday said it will receive $ 400 million later this week from a $ 1.5 billion swap agreement with the Reserve Bank of India in line with a deal signed last month. However, many dealers said a delay in raising up to $ 1.5 billion as planned has also increased pressure on the currency, with the Central Bank heavily defending the rupee. Central Bank officials were not available for comment. Two-week and one-week forwards were steady at 133.90/134.00 and 133.60/70 per dollar, respectively, while the Central Bank prevented the spot rupee from dropping below 132.90/133.20, a limit it set in February. Currency dealers said political uncertainty has been weighing on investor confidence and putting pressure on the exchange rate after President Maithripala Sirisena’s 100-day program ended on Thursday. On Tuesday, the Government of Sirisena, who promised to dissolve the Parliament after the end of his 100-day program on 23 April, passed some of the reforms promised with an overwhelming majority, which analysts said would help boost investor sentiment.

Bourse up; passage of 19A helps

Reuters: Shares edged up to their highest close in more than eight weeks on Wednesday, a day after Parliament overwhelmingly approved some diluted reforms, but concerns over political stability remained. The Parliament passed the reforms on Tuesday reducing some of the president’s powers, in a move that did not go as far as President Maithripala Sirisena had promised but is nevertheless seen as a victory for the Leader. The main stock index ended up 0.55% at 7,173.37, its highest close since 6 March. It has gained 3.95% since the Central Bank cut key rates on 15 April, while yields on T-Bills have fallen 41-51 basis points since then. “Market is up on positive sentiment but people will be a little wary till the elections are over,” said Reshan Kurukulasuriya, Chief Operating Officer of Richard Pieris Securities Ltd. The day’s turnover was Rs. 974.7 million ($7.33 million), compared with this year’s daily average of around Rs. 1.06 billion. The market saw a net foreign inflow of Rs. 2.73 million worth of shares on Wednesday, extending the net foreign inflow so far this year to Rs. 3.81 billion. Analysts said the market could be dull until the perception of political uncertainty is addressed and many investors were in a wait-and-watch mode before the Parliamentary elections. Shares of Carson Cumberbatch Plc jumped 4.17%, while C T Holdings Plc rose 0.08%. Some analysts said the markets would stay volatile until Parliamentary elections. Investors have been cautious due to political uncertainty as Prime Minister Ranil Wickremesinghe’s party does not have a majority in Parliament and Sirisena promised to dissolve Parliament after the end of his 100-day program on 23 April. The index lost 6.6% last month, its biggest monthly drop since October 2012, as investors sold holdings to settle margin trades amid concerns about political stability and a rise in interest rates.