Secondary bond markets turn bullish driven by tariff reductions

By Wealth Trust Securities
The positive momentum witnessed in secondary bond markets over the previous two days was given a further boost yesterday as markets turned extra bullish, driven by the tariff reductions in fuel and electricity which acts favourably on inflation, as yields were seen plunging yesterday.
The five year maturity of 1 July 2019, the eight year maturity of 1 July 2022 along with the nine-and-a-half year maturity of 1 January 2024 were the heavily traded durations as its yields were seen dipping to intraday lows of 7.15%, 7.88% and 8.05% respectively against its days opening highs of 7.35%, 8.00% and 8.17%.

In addition the two 2018 maturities (i.e. 1 April 2018 and 15 August 2018) and the 15 September 2019 maturity were seen changing hands within the range of 7.00% to 7.05%, 7.10% to 7.18% and 7.30% to 7.38% respectively as well.
The bullish momentum was further supported by the outcome of the weekly Treasury bill auction as its weighted averages were seen dipping for a second consecutive week, with the 182 day bill decreasing the most by 04 basis points to 6.23%. The 91 day and 182 day bills followed suit by reflecting dips of three basis points each to 6.15% and 6.26% respectively.
Interestingly, the total accepted amount was more than double its initial total offered amount for the first time in 10 weeks as well. In secondary bill markets, May 2015 maturities were quoted at levels of 6.20% to 6.25% subsequent to the auction while December 2014 bills were at levels of 6.15% to 6.20%.

Meanwhile in money markets, the total surplus of Rs. 25.96 billion was deposited at CBSL’s Standing Deposit Facility Rate (SDFR) of 6.50% as Central Bank continued to refrain from conducting any auctions under its Open Market Operations (OMO) for a third consecutive day. Overnight call money and repo rates remained steady to average 6.70% and 6.52% respectively.
Rupee on spot next contrasts dip once again
In Forex markets, the rupee on spot next contracts depreciated to an intraday low of Rs. 130.35 yesterday on the back of importer demand before closing the day marginally higher once again at 130.31/35.
However spot contracts were seen closing the day mostly unchanged at levels of Rs. 130.28/31. The total USD/LKR traded volume for 16 September was at $ 66.55 million.
Some of the forward dollar rates that prevailed in the market were: one month – 130.85; three months – 131.62; and six months – 132.64.
Given below are the details of the auction and the closing secondary market bond yields for the most frequently traded maturities:

Rupee ends firmer on moral suasion; forwards pick up Reuters: The rupee ended a tad firmer on Wednesday as moral suasion by the Central Bank averted a further fall amid sustained importer dollar demand, forcing dealers to trade in currency forwards, dealers said. The rupee ended at 130.28/32 per dollar, compared to Tuesday’s close of 130.31/40. Dealers said moral suasion by the Central Bank prevented trades above 130.28 and forced trading in forwards. “Nothing is being traded above 130.28. There is importer dollar demand, but moral suasion is there,” said a currency dealer, asking not to be named. Another currency dealer confirmed the move. “At the moment the spot is trading at 130.28 and when money flows into the market in future, we can’t hold this. Cash and forwards are trading,” a Central Bank official said. The three-day forwards, or spot next, was traded at 130.37 per dollar intra-day, ending the session at 130.36 compared to Tuesday’s 130.32/38.