Steep parallel shift downwards on yield curve

Monday, 7 July 2014 00:19 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Bond yields hit close to eight year lows The downward trend in secondary market bond yields witnessed during the previous week continued during the week ending 4 July as well, driven by the outcome on Inflation for the month of June and future expectations on it, the newly released monitory sector credit numbers coupled with speculation on the outcome of this month’s monitory policy announcement as volumes traded remained very high.

A bulk of the activity centered on the belly-end to the longer end of the yield curve, consisting of the five-year duration of 1 June 2019, the seven-year duration of 1 May 2021 and the eight-year duration of 1 July 2022 as its yields reflected week on week declines of 56 basis points (bp), 50 bp and 65 bp respectively to hit close to an eight year low of 8.07%, an three year low 8.70% and a thirty two month low of 9.05%. This was closely followed by the seven and a half year duration of 1 January 2024 as its yield dipped by 53 bp as well to a weekly low of 9.42%. In addition, on the shorter end of the yield curve, the two 2018 maturities (i.e. 1 April 2018 & 15 August 2018) were seen dipping by 38 bp and 33 bp respectively to lows of 7.80% and 7.90% respectively followed by the 15 May 2017 by 25 bp to a low of 7.28% and the 1 April 2016 by 15 bp to 7.05% reflecting a steep parallel shift downwards on the overall yield curve. The downward trend was further supported by the outcome of the weekly Treasury bill auction at where weighted averages were seen declining across the board with the 91-day and 182-day bill dipping by 1 basis point each to 6.50% and 6.68% respectively while the 364-day bill dipped by 2 basis points to 6.97%. Meanwhile demand for secondary market bills continued during the week, mainly centering on the 364-day maturity as it was seen changing hands within the range of 6.88% to 6.92% post-auction.

Meanwhile in money markets, overnight call money and repo rates remained steady during the week to average 6.98% and 6.56% respectively

despite average surplus liquidity decreasing to Rs. 7.53 billion in comparison to its previous week’s average of Rs. 19.22 billion. The Open Market Operations (OMO) Department of the Central Bank continued to mop up liquidity during the week by way of overnight to 77-day term repo auctions at weighted averages ranging from 6.54% to 6.80%. Rupee appreciates marginally during the week Meanwhile, in Forex markets, the rupee gained marginally to close the week ending 4 July at levels of Rs. 130.26/27 against its previous weeks closing of Rs. 130.34/35 on the back of export conversions outweighing importer demand and a tightness in liquidity in the system. The daily average USD/LKR traded volume for the first four days of the week was $ 118.89 million. Some of the forward dollar rates that prevailed in the market were 1 Month: Rs. 130.58, 3 Months: Rs. 131.22 and 6 Months: Rs. 132.32.