Secondary market bond yields seesaw during the week

• A bunching up of the yield curve witnessed during the week 
• Liquidity increases to a five-week high

By Wealth Trust Securities The uncertainties which prevailed in secondary bond markets during the week ending 27 February continued at the start of the first week of March, with the weighted averages at the weekly auction increasing to near one-year highs. The weighted averages on the 91-day and 182-day bills was seen increasing to on- year highs of 6.89% and 6.98% respectively followed by the 364-day bill increasing to an eighth month high of 6.99%. Secondary market bond yields were seen increasing subsequent to the release of auction results mainly on the liquid two three-year maturities (01.04.2018 & 15.08.2018) and the seven-year maturity of 01.07.2022 to ten-month and eight-month highs of 8.10% each and 8.80% respectively. However, buying interest from these levels saw yields dip once again towards the latter part of the week ending 6 March to hit weekly lows of 7.80%, 7.90% and 8.10% as activity increased marginally and the yield curve showed signs of bunching up (A clustering of yields from durations of three years to seven years). Furthermore, buying interest in secondary market bills was evident towards the latter part of the week as well, with the 91-day and 364-day bills being quoted at levels of 6.75/90 and 6.85/00 respectively. As expected in line with the withdrawal of the special standing deposit facility of 5.00%, overnight call money and repo rates increased during the week ending 6 March to average 6.78% and 6.52% respectively against its previous weeks averages of 6.04% and 5.66%. Surplus liquidity was seen increasing to a five-week high of Rs. 78.52 billion by Friday 6 March to average Rs. 36.74 billion for the week. No Open Market Operations (OMO) was conducted during the week.   Rupee dips further during the week Active one week forward dollar/rupee contracts depreciated further during the week ending 6 March to close the week at Rs. 133.60/75 while spot and spot next quotes remained stagnant at Rs. 132.90/20 and Rs. 132.92/20 respectively. The daily average USD/LKR traded volume for the first three trading days of the week stood at $ 43.78 million. Some of the forward dollar rates that prevailed in the market were one month - 134.30; three months - 135.35 and six months -136.80.