Secondary bond market activity increases as market becomes bullish

By Wealth  Trust Securities

The volatility that took place leading to the monetary policy announcement was controlled towards the latter part of the week as secondary market bond yields remained steady to close the week.

The upward momentum witnessed during the previous week was carried forward to this week as well as Treasury bond yields continued to edge up during the early part of the week. The upward trend was further supported by the fact that weighted averages at the weekly Treasury bill auction increased across the board for the first time in 13 weeks.

However secondary market yields took a ‘U’ turn the day before the monetary policy announcement on the back of considerable buying interest. Following the policy announcement, at where policy rates were kept unchanged for a third consecutive month, yields edged up once again to close the week at levels of 11.20/23% on the two liquid five-year maturities (i.e. 15 August 2018 and 1 April 2018).

The second round of increase in yields was limited due to the anticipation of both deposit rates and lending rates of commercial banks will be adjusted downwards in the near term as mentioned in the monetary policy announcement.

Meanwhile the total offered amount for next week’s Treasury bill auction was reduced to Rs. 16 billion. Given are the closing, secondary market yields for the most frequently traded maturities.

Meanwhile, in money markets, as only an amount of Rs. 5.5 b was mopped up from the system on a long-term basis on tenure ranging from 28-32 days by way of outright sales of Treasury bills auctions conducted by the Open Market Operations (OMO) department of Central Bank, surplus liquidity continued to remain high to close the week at Rs. 24.86 b with liquidity being drained on a daily basis at an average of 8.35%. This intern helped overnight call money and repo rates to remain stable to average 9.40% and 8.56% respectively for the week.

Rupee appreciates to a three week high

The rupee appreciated during the week against its last week’s closing levels of Rs. 127.45 to a three week high of Rs. 126.45 on Friday. The total USD/LKR traded volume for the first four days of this week stood at US$ 63.91 million. Given are some forward dollar rates that prevailed in the market: one month – 127.52; three months – 129.39; six months – 132.25.