Yields of shorter maturities rise ahead of Monetary Policy announcement

By Wealth Trust Securities

The secondary bond market witnessed subdued activity and varying rates during the week ending 28th October. Continues foreign selling of Rupee bonds consisting mainly of the short tenure maturities such as 01.04.18, 15.09.19 and 01.08.20 resulted in their yields increasing to intraweek highs of 11.15%, 11.60% and 11.90% respectively against opening lows of 11.00%, 11.44% and 11.60%. The total Rupee outflow during this period was approximately 7.2 billion. 

This trend was further witnessed at the weekly Treasury bill auction where the weighted averages were seen edging up for a second consecutive week. Furthermore, selling pressure of short tenure bills resulted in yields of August 2017 maturities increase to levels of 10.50%. 

However, buying interest of the mid-longer maturities of 01.08.24 and 01.08.26 resulted in trades taking place within the range of 11.80% to 11.85% to close the week steadily at 11.80/95 and 11.85/95 respectively, reflecting a flatting out of the yield curve.

The monetary policy announcement for the month of October is due on Monday the 31st at 7.00 p.m. The Central Bank of Sri Lanka kept its policy rates steady at its last month meeting for a second consecutive month following a 50 basis points increase in July.

In money markets, the overnight repo rate decreased during the week to average 8.69% as liquidity was seen increasing for a third consecutive week to a net deficit of Rs. 25.06 b. The Open Market Operations (OMO) Department of the Central Bank of Sri Lanka continued to infuse liquidity by way of overnight Reverse repo auctions at weighted averages of 8.50%. The overnight call money rate remained stagnant at 8.42% throughout the week.

Rupee dips further 

 The USD/LKR rate on spot next contacts dipped to an intraweek low of Rs. 148.10 during the early party of the week against its previous weeks closing levels of Rs. 147.50/60 while activity was seen shifting to one week forward contracts during the latter part of the week to close the week at Rs.148.30/45. The daily USD/LKR average traded volume for the first four days of the week stood at $ 64.23m. 

Given below are some forward dollar rates that prevailed in the market.