Secondary market yields steady as policy rates held unchanged for a second consecutive month

By Wealth Trust Securities

The market for Treasury bills and bonds started the day with the announcement of the monthly monitory policy decision yesterday, which saw Central Bank hold its policy rates at 7.50% and 9.50% for a second consecutive month.

This in turn saw secondary market bond yields increase marginally in early hours of trading mainly on the two liquid five year maturities (i.e. 01.04.2018 and 15.08.2018) to an intraday high of 10.90% following a further announcement of authorities deciding not to pursue a new IMF funding program.  However, yields on these two maturities dipped once gain towards the latter part of the day to levels of 10.85%, following the results of the five year Treasury bond auction, which saw its weighted average (WAvg) dip by 1 basis points to 10.73% against its previous auction average. An amount of Rs. 4.3 billion was accepted at this auction against its initial offered amount of Rs. 2 billion. Given below are the details of the auction:

Meanwhile, demand for the 364 day bill continued at levels of 11.03% to 11.06% yesterday ahead of its weekly auction due today. At last week’s auction, its WAvg remained steady at 11.11% while WAvg’s on the 91 day and 182 day bills decreased. Given below are the closing, secondary market yields for the most frequently traded maturities:

Liquidity increases considerably once again

The surplus liquidity in money markets jumped to Rs. 43 billion yesterday against its previous day’s level of Rs. 19 billion. The reason for the increase in liquidity was unclear as it did not correspond with the Treasury bill holding of CBSL according to market sources.

An amount of Rs. 16.8 billion was drained out by way of an overnight Repo auction conducted by the Open Market Operations (OMO) department of Central bank at a WAvg of 8.35% with a further Rs. 27 billion been deposited at its Repo window rate of 7.50%. Overnight call money and repo rates remained steady at average 9.57% and 8.65% respectively.

Rupee continues to appreciate further

In Forex markets, the rupee appreciated further to close the day at Rs. 126.10 against its previous day’s closing of Rs. 126.30 on the back of dollar inflows into the system. The total USD/LKR traded volume for the previous day (11.02.13) stood at US$ 32.04 million. Given below are some forward dollar rates that prevailed in the market: