Upward parallel shift on the yield curve witnessed during the week

By Wealth Trust Securities

Foreign selling on rupee bonds coupled with local selling pressure was seen as the main two reasons for a parallel shift upwards on the overall yield curve during the week ending 14 June. Activity continued to mainly surround the two liquid five year maturities (i.e. 15.8.2018 and 1.4.2018) as its yields reflected an increase of 13 basis points during the week to close the week at levels of 11.19/21 and 11.24/28 respectively against its previous weeks closing levels.

It was seen hitting weekly highs of 11.25% and 11.30% respectively in comparison to its weekly lows of 11.08% and 11.14%. In addition, activity on the longer leg of the curve was witnessed as well, with the eight year maturity seen changing within the range of 11.52% to 11.56% and closing the week at levels of 11.55/62.

However, contrary to the increase in secondary market bond yields, secondary bill market yields reflected a dip towards the latter part of the week mainly on the 364 day bill as it was seen changing hands within the range of 10.80% to 10.85. Given are the closing, secondary market yields for the most frequently traded maturities.

Overnight call money and repo rates remained mostly unchanged during the week to average 8.55% and 8.20% respectively for the week, as the Open Market Operations (OMO) department of Central bank conducted daily and term repo auctions in order to drain out excess liquidity from the system.

It mopped up an amount of Rs. 5 billion through a 35 day repo auction at a weighted average of 8.56% while a further amount of Rs. 5 billion was drained out by way of outright sales of Treasury bills with durations of 17 and 31 days. The 17 day bill fetched a weighted average of 8.25%, while the weighted average of the 31 day bill was 8.49%.

Rupee depreciates to a six month low during the week

The USD/LKR rate was seen losing ground by as much as Rs. 2.20 during the week to close the week at Rs. 128.50/70. It was seen hitting a six month low of Rs. 129.00 on Friday, a level last seen on 5 December 2012. Foreign selling on rupee bonds, forward hedging by foreign rupee bond holders coupled with importer demand was seen as the main reasons behind this considerable dip according to market sources. The daily average USD/LKR traded volume for the first four days of this week stood at US$ 53.91 million. Given are some forward dollar rates that prevailed in the market: One month – 129.35, three months – 130.80, six months – 132.85.