Primary market yields continue upward trend ahead of policy announcement

• Outcome of auction leads to a distortion of the yield curve
• Secondary market yields seesaw during the day

By Wealth Trust Securities The outcome of the Treasury bond auctions conducted yesterday where weighted averages continued their upward trend to record 9.13% and 9.55% respectively on a 4.06 year maturity of 15.09.2019 and a 6.04 year maturity of 01.08.2021, led to secondary market bond yields closing the day higher, reversing a downward trend witnessed in the morning hours of trading. The recorded weighted average on the 6.04 year maturity was seen sharply higher than the weighted average of 9.17% recorded on a 7.04 year duration auctioned last week, leading to a distortion of the yield curve while this was evident in secondary markets as well. In secondary bond markets, activity continued to remain high, centring on the 01.06.2018, the two auction maturities of 15.09.2019 and 01.08.2021, the 01.07.2022 and the 01.09.2023 maturities within daily lows of 8.70%, 9.12%, 9.40%, 9.05% and 9.60% respectively against its highs of 8.80%, 9.20%, 9.45%, 9.25% and 9.80%. Meanwhile in secondary market bills, continued demand saw the 91 day, 182 day and 364 day maturities quoted at levels 6.90/00, 7.00/20 and 7.15/35 respectively. This was ahead of its weekly auction due today, where an total amount of Rs. 16 billion will be on offer consisting of Rs. 4 billion on the 91 day, Rs. 5 billion on the 182 day and Rs. 7 billion on the 364 day maturities. At last week’s auction, weighted averages increased to 14 month highs across all three maturities breaking the psychological level of 7.00%. Furthermore, market participants were seen eagerly awaiting the Central Bank’s monetary policy announcement for March, which is due today. In money markets, overnight call money and repo rates averaged at 6.70% and 6.76% respectively as surplus liquidity stood at Rs. 49.27 billion yesterday. The total surplus amount was deposited at CBSL’s Standing Deposit Facility Rate (SDFR) of 6.50% as the Central Bank refrained from conducting any auctions under its Open Market Operations (OMO).     Rupee holds steady In Forex markets, the USD/LKR rate on one week forward contracts remained mostly unchanged yesterday; to close the day at Rs. 133.60/133.70. The total USD/LKR traded volume for 16 March 2015 was at $ 63 million. Some of the forward USD/LKR rates that prevailed in the market were 1 Month - 134.40; 3 Months - 135.60 and 6 Months - 137.70.