Relentless buying interest sees secondary market bond yields plunge

Monday, 28 July 2014 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The secondary market bond yields plunge during the week ending 25 July driven by relentless buying interest, reflecting a sharp parallel shift downwards on the yield curve for a second consecutive week.

This is because of the bilateral agreement entered into by Reserve Bank of India (RBI) and the Central Banks of Sri Lanka (CBSL) which enables CBSL to further diversify its reserves management activities into Indian rupee denominated assets, while reciprocally the RBI is able to access the Sri Lankan Government securities market up to a maximum value equivalent of $ 500 million coupled with the sensational reduction in weighted averages at the weekly primary Treasury bill auctions over the past few weeks. Activity remained at its highest levels once again, with the most sort after durations of the fifteen year maturity of 1 May 2029 reflecting the sharpest week on week decline of 35 basis points (bp) to a weekly low of 9.45%, the eight year maturity of 1 July 2022 by 23 bp to a low of 8.12% and the five year maturity of 1 July 2019 by 18 bp to 7.50%. Furthermore, on the belly end of the yield curve, the two 2018 maturities (i.e. 1 April 2018 and 15 August 2018) reflected dips of 20 bp and 15 bp respectively to weekly lows of 7.26% and 7.34% while on the shorter end, the two year maturity of 2016 dipped by 12 bp to a weekly low of 6.85% while the three year maturity of 2017 dipped by 9 bp to a low of 7.05%. In secondary bill markets, the 364-day bill was seen quoted at levels of 6.58/65 post-auction. Meanwhile in money markets, overnight call money and repo rates decreased marginally to average 6.72% and 6.50% for the week as surplus liquidity averaged at Rs. 36.19 billion. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of three term repo auctions for durations ranging from four to thirty five days at weighted averages ranging from 6.50% to 6.52%.

Rupee closes the week stronger The USD/LKR rate was seen closing the week stronger at Rs. 130.21/24 in comparison to its previous weeks closing of Rs. 130.28/30 on the back export conversions outweighing importer demand. The daily average USD/LKR traded volume for the first four days of last week was $ 78.26 million. Some of the closing forward dollar rates that prevailed in the market were one month: Rs. 130.45, three-months: Rs. 131.10 and six months: Rs. 132.23.