Yield curve flattens out during the week

By Wealth Trust Securities

The secondary bond market remained active during the short trading week ending 12 May with the yield curve flattening out. 

Selling interest on short ended maturities saw its yields increasing driven by the outcome of the Treasury bond auctions while buying interest on the belly end to the long end of the curve saw its yields holding steady. The yields on the liquid maturities of 15.01.2019 and 15.12.2021 were seen increasing to levels of 11.10% and 11.45% respectively against its previous weeks closing levels of 10.75/90 and 11.10/20 on the back of selling interest leading to the auction and following it. However buying interest on the mid-term maturities, mainly on the 01.08.2024 and 01.08.2026 saw it changing hands at levels of 11.50% to 11.55% and 11.55% to 11.62% respectively against its weeks opening levels of 11.42/50 and 11.50/60.

This was despite the outcome at the primary auctions where the weighted averages on the 182 day and 364 day bills were seen decreasing for a third consecutive week, followed by the weighted averages on the Treasury bond auctions decreasing as well.  

Meanwhile the foreign holding in Rupee bonds was seen increasing once again for the week ending 9 May to record an inflow of Rs. 2.16 billion. 

The daily secondary market Treasury bond transacted volumes for the first two days of the week averaged Rs. 19.86 billion. 

In money markets, the Open Market Operations (OMO) Department of the Central Bank of Sri Lanka injected liquidity during the week by way of overnight reverse repo auctions at a weighted average of 8.75% as the average net liquidity shortage for the week stood at Rs. 14.93 billion. The overnight call money and repo rates averaged at 8.74% and 8.80% respectively for the week. 

Rupee appreciates further during the week  

The rupee continued to appreciate during the week to close week at Rs. 152.55/65 against its previous weeks closing levels of Rs. 152.60/75 on the back of export conversions following the sovereign dollar bond issue and reduced importer demand.

The daily USD/LKR average traded volume for the two days of the week stood at $ 81.05 million. 

Some of the forward dollar rates that prevailed in the market were one month – 153.60/70; three months – 155.40/50 and six months – 158.25/35.