ECONOMYNEXT – Sri Lanka’s dormant bond markets became active Wednesday after authorities kept rates unchanged, with yields sharply higher from March 18 the last active trading day, while yields of long bonds auctioned yesterday fell.
Bond markets became inactive after one year yields rose sharply at a successful Treasury bill auction Wednesday where 12-month bills topped 10 percent and the monthly policy rate decision due yesterday. The central bank held rates unchanged.
On Wednesday nine year bonds maturing on 15.03.2015 auctioned at an average yield of 13.80 percent were quoted at 13.65/80 percent. They were up from 12.20/50 percent on March 18.
When rates fall, the price of the bond rises, giving profits to primary dealers, who can sell the bonds to long term funds. The longer the tenor the bigger the profits.
After calling offers to sell 10 billion rupees of 2025 bonds 21.4 billion rupees of bonds were sold.
14-year bonds maturing on 15.05.2030 auctioned at 14.23 percent were quoted 13.80/14.10 percent up from 12.25/60 percent on March 18.
After calling bids for 10 billion rupees of bonds, 28.9 billion in bonds were sold. In 4-year bonds maturing on 01.01.2020 only 10.2 billion rupees of bonds were sold, after offering to sell 10 billion rupees of securities.
When rates fall after auction, primary dealers can sell to pension funds can make most profits if the tenor is long and the cost to the government will be the higher.
Quotes for other selected maturities Wednesday were as follows compared to March 18. Over the last two market days, firm quotes were rare or very wide.
2-year bonds maturing on 15.08.2018 quoted at 12.00/25 percent up from 11.05/15 percent on March 18.
3-year bonds maturing on 01.07.2019 quoted 12.30/80 percent up from 11.40/60 percent.
4-year bonds maturing on 01.05.2020 quoted 12.60/13.00 percent up from 11.90/12.00 percent.
7-year bonds maturing on 01.09.2023 quoted 12.80/13.50 up from percent 12.15/12.30 percent. (Colombo/Mar30/2016)