Steepening of yield curve witnessed during the week

Monday, 3 February 2014 01:48 - - {{hitsCtrl.values.hits}}

By Wealth Trust Securities Secondary market bond yields on longer tenure maturities resumed its upward trend during the week, reflecting a shift upwards on the belly end of the yield curve on the back of selling pressure by foreign holders of rupee bonds and local participants as well. Accordingly, a majority of activity was witnessed on the two 2018 maturities (i.e. 1.4.2018 and 15.8.2018) during the week within weekly lows of 8.83% and 8.92% respectively at the beginning of the week, to highs of 9.27% and 9.30% respectively towards the later part of the week. In addition, moderate volumes were seen changing hands on the 15.1.2019 maturity within the range of 9.25% to 9.35% during the week while the

1.5.2021 maturity was traded within the range of 10.00% to 10.25%. This was despite weighted averages at the weekly Treasury bill auction resuming its downward trend after a lapse of one week with the 91-day and 182-day maturities dipping by 2 basis points (bp) each to 6.82% and 7.00% respectively while the 364-day dipped by 1 bp to 7.14%, and inflation for the month of January reflecting a third consecutive month of decreases on its point to point to 4.4% and its annualised average to 6.5%. However, the shorter end of the yield curve reflected a marginal shift downwards on the back of the excess liquidity in the system and expectations of overnight call money and Repo rates to tread down in the coming weeks due to the non-collateralisation of funds deposited at CBSL’s Standing Deposit Rate (SDR) of 6.50% by market participants with effect from February. This in turn is expected to reflect favourably at the weekly Treasury bill auctions as well as witnessed at last week’s auction, with heavy demand seen for the 91-day and 182-day maturities.

Meanwhile, in money markets, surplus liquidity increased towards the later of the week to close the week at Rs. 51.73 billion despite the Open Market Operations (OMO) department of Central Bank mopping up liquidity on a term basis during the week by way of six term repo auctions, totalling Rs. 45.6 billion for durations ranging from three days to 56 days at WAvg’s of 6.68% to 6.74%. Furthermore, liquidity in the market is expected to increase further during the week following the bond maturity of Rs. 53.7 billion on 1 February 2014. Overnight call money and repo rates decreased marginally to average 7.38% and 6.72% for the week. Rupee dips marginally during the week The rupee closed the week marginally lower at Rs. 130.75/80 in comparison to its previous week’s closing levels of Rs. 130.70/72 on the back of importer demand. The daily average USD/LKR traded volume for the first four days of the week was at US$ 51.10 million. Some of the forward dollar rates that prevailed in the market were: One month – 131.11, three months – 131.83 and six months – 133.08.