Steep parallel shift downwards on yield curve witnessed during week

Monday, 29 September 2014 01:32 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Driven by the outcome of the monitory policy meeting for the month of September at where access to Central Bank of Sri Lanka’s (CBSL) Standing Deposit Facility (SDF) window of 6.50% was limited to three times per calendar month with effect from 1 October 2014 and cancellation of its OMO (Open Market Operations) auctions which will result in a surge in liquidity to above Rs. 300 billion in the near term, saw secondary market bond yields plummet during the week, reflecting a steep parallel shift downwards of the yield curve for a second consecutive week.

The outcome of the weekly Treasury bill auction at where the weighted average of the 364 day bill was seen dipping below 6.00% for the first time in history to 5.89% and future expectations of it as well was seen adding further momentum to the bullish momentum. Activity remained very high during the week ending 26 September, with the market favourite maturities of 1 May 2021, 1 July 2022 and 1 January 2024 reflecting the sharpest week on week drops of 51 basis points (bp) and 53 bp each respectively to weekly lows of 7.05%, 7.20% and 7.52%. In addition, the two year maturity of 1 April 2016 was seen dipping to a low of 6.10%, the three year maturity of 15 May 2017 to a low of 6.30%, the two four year maturities (i.e. 01.04.2018 and 15.08.2018) to lows of 6.40% each, the five year maturity of 1 July 2019 to a low of 6.53% and the two fifteen year maturities (i.e. 01.01.2029 and 01.05.2029) to lows of 8.70% each. Meanwhile, today’s (Monday) Treasury bond auction, the first in two months will have a total amount Rs. 2 billion on offer, consisting of Rs. 1 billion on the eight year maturity of 1 October 2022 and Rs. 1 billion on the fifteen year maturity of 1 May 2029 which pay semiannual coupons of 10.00% and 13.00% respectively. In secondary bill markets, the 364 day bill was quoted at 5.65/75 and the 182 day bill at 5.50/60. In money markets, surplus liquidity was seen increasing to close the week at a seven month high of Rs. 79.50 billion as overnight call money and repo rates tumbled to average 6.43% and 6.25% respectively against its previous week’s averages of 6.67% and 6.52%.

Rupee dips during the week Meanwhile in dollar/rupee markets, the USD/LKR rate lost ground during the week to close the week at Rs. 130.35/45 against its previous week’s closing levels of 130.28/30 on the back of importer demand. The daily average USD/LKR traded volume for the first four trading days of the week ending 26 September was at $ 86.77 million. Some of the closing forward dollar rates that prevailed in the market were 1 month – 130.82; 3 months – 131.46 and 6 months – 132.44.