Secondary bond markets turn bullish during the week; parallel shift downward on yield curve

Monday, 2 December 2013 00:00 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities The expectations on inflation and its final outcome for the month of November at where its point to point decreased to a 20 month low of 5.60% while its annual average continued its downward trend to record a 12 months low of 7.3% coupled with the outcome of the weekly Treasury bill auction at which its weighted averages (WAvgs) declined for a 10th consecutive week saw secondary bond markets turn bullish for the week ending 29 November as considerable buying pressure set in, to reflect a parallel shift downwards on the overall yield curve.

Activity remained high during the week with the 3.1 year maturity of 1 January 2017 reflecting the sharpest decline week on week of 32 basis points (bp) to a weekly low of 10.50% followed by the two year maturity of 15 July 2015 of 25 bp to a weekly low of 9.89% and the 2.4 year maturity of 1 April 2016 by 21 bp to a weekly low of 10.22%. In addition, the liquid two five year maturities (i.e. 1 April 2018 and 15 August 2018) reflected week-on-week dips of 16 bp and 19 bp respectively

to hit weekly lows 10.94% and 11.00%. Furthermore, moderate activity on the less liquid maturities of 15 July 2017 was seen within a weekly low of 10.65% to a high of 10.95% while the 15 July 2018 within a low of 11.10% to a high of 11.25%. Meanwhile, in secondary bill market, continued demand for the 182 day and 364 day bills and duration centring it saw it change hands 10 to 15 bp below its respective weighted averages.

Meanwhile in money markets, the overnight call money and repo rates remained steady to average 7.78% and 7.07% for the week despite surplus liquidity fluctuating within a weekly high of Rs. 30.19 billion to a low of Rs. 10.1 b. However, interestingly, the Central Bank’s discount window of 8.50% was seen been accessed for the first time in three months on Wednesday and Thursday for amounts of 0.4 b and 0.34 b respectively. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of seven day term repo auctions at WAvgs ranging from 7.44% to 7.46%. Rupee on spot next contracts dips during the week In Forex markets, the USD/LKR rate closed the week marginally lower at Rs. 131.18/22 against its previous week’s closing of 131.10/15 on the back of importer demand, while the rate on spot next contracts was seen depreciating to a weekly low of Rs. 131.40 before gaining once again to settle at Rs. 131.18/25 against its previous week’s closing of Rs. 131.20/23. The total USD/LKR traded volume for the first four days of this week stood at US$ 47.81 million. Some of the forward dollar rates that prevailed in the market were: one month – 132.03; three months - 133.60; and six months – 135.85.