ECONOMYNEXT - Sri Lanka's bond yields extended falls with some foreign buying also seen in some maturities, dealers said, while the rupee continued to be defended in the spot next forex market amid money printing.
The spot next rupee was quoted around 144.50/145.00 to the US dollar. A state bank that usually acts for the authorities was seen selling dollar to keep the rate below 145.00 most of the week.
In bond markets some foreign investors were seen buying bonds, improving sentiment among local investors, ahead of a float of the currency.
On Thursday the overnight liquidity short fell from 57 billion rupees to 12.8 billion rupees as the central bank monetized close to 40 billion rupees of debt printing money permanently. In April however Sri Lanka's monetary base expands as bank customers withdraw cash for the traditional New Year festival.
Bond dealers are able to borrow from the central bank's overnight printed money window at 8.00 percent and invest in bonds at 11 to 12 percent giving 300 basis points in carrying profits.
The cash injection and monetizing is putting pressure on the currency, requiring more interventions to mop up the liquidity.
The central bank's Treasuries stock climbed from 221 billion rupees on March 31 to 279 billion rupees on April 07, topping the peak seen during the 2011/2012 currency crisis.
Sri Lanka is expected to reach a staff level agreement with the International Monetary Fund next week, State Minister or Finance Lakshman Yapa Abeywardene said.
However the deal has to be approved by the Fund's board. Analysts have also said that the rupee will have to be floated before any IMF money.
Selected bond yields, for Friday are given below:
2-year bond maturing on 01.04.2018 quoted at 10.25/50 down from Monday's 11.00/20 percent
4-year bond maturing on 01.05.2020 quoted at 11.30/40 (auctioned at 12.78 on the 29th) down from 11.90/12.00 percent Monday.
5-year bond maturing on 01.08.2021 quoted at 11.45/50 (actioned at 13.00 percent 31-st) down from 12.05.15 percent Monday.
10-year bond maturing on 01.06.2026 quoted at 12.05/15 (auctioned 13.93) down from 12.35/45 percent Monday.
12-year bond maturing on 01.09.2028 quoted at 12.30/45 (31s March 13.72) down from 12.40/50 percent Monday.
14-year bond maturing on 15.05.2030 12.40/50 (auctioned at 14.23 on 29th March 14.80 in) down from 12.45/55 Monday. (Colombo/April09/2016)