Secondary bond market yields surge

  • Yields quoted by participants cited as reason for pressure

By Shenal Fernando

During the week from 16 to 22 September, an upward surge in the secondary bond market yield curve was witnessed across the board, following the continuous pressure exerted by market participant-quoted yields, First Capital Research reported.

At the beginning of the week, overall market sentiment expressed a slight reversal on the back of buying interest witnessed at the short end of the yield curve. However, the market continued recording low volumes.

Following the Central Bank of Sri Lanka’s (CBSL) announcement of the removal of the guidance rate applicable for one-year T-bills at the auction on 22 September 2021, the secondary market observed a slight upward shift in yields, although in the midst of thin trading, First Capital added.

This upward shift in the secondary market yield curve continued in the end of the week as well, although the volume was negligible as a majority of market participants opted to be on the sidelines.

At the bill auction on 22 September, which is the first auction without price controls since March 2020, only 51% or Rs. 20.2 billion of the Rs. 39.5 billion offered was accepted. Yields of three-month, six-month, and one-year T-bills rose to 6.38% (+30 bps), 6.27% (+32 bps), and 6.50% (+38 bps), respectively.

According to First Capital, throughout the week, market liquidity remained negative and marginally volatile. Excess liquidity stood at Rs. -209.8 billion during the beginning of the week and subsequently turned to Rs. 203.1 billion by the end of the week.

Meanwhile, CBSL bought Rs. 45.9 billion of T-bills during the week, increasing its holding to Rs. 1,330.3 billion. Simultaneously, foreign holding of government securities decreased to 0.02% or Rs. 1.9 billion.

In the foreign exchange market, the Sri Lanka rupee held steady against the US dollar at Rs. 199.6 at the end of the week.

Over the next week, T-bill maturity amounting to Rs. 68.6 billion and T-bond interest amounting Rs. 13.3 billion will come due.