Yield curve in steep parallel shift upwards

Monday, 20 October 2014 00:00 - - {{hitsCtrl.values.hits}}

Bond yields increase over 100 basis points week-on-week

Driven by the outcome of the weekly Treasury bill auction at where the weighted average on the 364 day bill was seen increasing for the first time in 56 weeks and the direction outlined for it in the medium term, secondary market bond yields were seen increasing during the week on the back of considerable selling interest, reflecting a parallel shift upwards on the overall yield curve for a third consecutive week.

Activity centered on the eight year maturity of 1 July 2022 and the nine year maturity of 1 January 2024 as its yields were seen increasing to three month highs of 8.80% and 9.00% respectively against its weeks opening lows 7.50% and 7.80%. In addition, considerable selling interest on the belly end of the yield curve saw three year durations increase to 7.25%, four year durations to 7.75% and five year durations to 7.90% while on the shorter end of the curve, durations centering the one year maturity were seen traded within the range of 6.00% to 6.20%. In secondary bill markets, the 364 day maturity was seen changing hands within the range of 6.00% to 6.20% as well. Meanwhile in money markets, overnight call money and repo rates decreased during the week to average 6.06% and 5.74% respectively as surplus market liquidity averaged at Rs. 38.97 billion. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of three to seven day term repo auctions at weighted averages ranging from 5.77% to 5.89%. Furthermore it drained out a total amount of Rs. 58.41 billion through three medium term repo auctions as well for durations of 35 days, 56 days and 77 days at weighted averages of 6.01%, 5.96% and 5.99% respectively.

Rupee dips during the week The rupee on spot next contracts lost ground during the week on the back of seasonal importer demand and foreign outflows on Government securities to close the week at 130.75/85 in comparison to its last week’s closing level of 130.50/55. Given are the closing forward dollar rates that prevailed in the market: one month – 131.25; three months – 132.10; six months – 133.20.