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Sri Lanka 2 to 4-year bonds yields plunge after rate cut, stocks up

COLOMBO (EconomyNext) – Sri Lanka’s 2 and 4 year bond yields fell 70 to 80 basis points in the secondary market after a 50 basis point cut in the policy rate, dealers said, while longer end tenors fell less sharply and stocks soared 1.2 percent.

At a Treasuries auction Wednesday, yeilds of 3,6 and 12 month bills fell exactly 30 basis points.

A 2-year bond maturing on 15.05.2017 closed at 7.40/50 percent levels Wednesday down from 8.18/23 percent levels on April 10, the last trading day, dealers said.

The bond is now trading only about 40 basis points higher from the 7.00/05 percent levels seen on February 24, shortly before the Central Bank panicked markets by accepting 10 times the offered volume at a 30-year bond auction sending yields soaring.

On February 27, the Central Bank also tightened monetary policy by closing a 5.0 percent window for excess liquidity and sending the floor rate up to a 6.50 percent window.

On Wednesday the rate was cut again to 6.0 percent. The ceiling rate of the corridor was also cut to 7.50 percent from 8.00 percent.

Two year bonds closed as much as 8.15/35 percent on March 17.

A 3-year bond maturing on 01.06.2018 closed at 8.20/30 percent levels, down from 8.80/85 percent levels on April 10.

On February 24 a 3-year bond maturing on 01.04.2018 was quoted around 7.18/21 percent and closed.

A 4-year bond maturing on 01.07.2019 was quoted around 7.40/49 percent on February 24. The 15.09.2019 bond rose as much 9.10/15 percent on March 17.

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A 5-year bond maturing on 01.06.2020 closed at 8.85/90 percent levels, down from 9.22/30 percent levels on April 10. The bond, a new issue, closed around 9.00/02 on March 30.

A 6-year bond maturing on 01.08.2021 closed around 8.90/9.00 percent Wednesday, down from 9.35/45 levels on April 10.

On February 24, a 6-year bond maturing on 01.05.2021 was quoted around 7.60/85 percent. 01.08.2021 bonds were quoted as high as 9.45/52 levels on April 08.

There was no liquid 7-year bond in the market Wednesday but a 01.07.2022 bond was given an indicative quote of around 8.80/9.10 percent by some dealers, down from 9.00/20 percent on April 10.

The 7-year bond alleged to have been used in insider dealing during the last week of February was quoted around 7.80/85 percent on February 24. It closed as high as 9.30/50 percent on March 10.

An 8-year bond maturing on 01.09.2023 was closed at 9.40/50 percent down from 9.97/80 percent on April 10. The bond closed a 9.60/70 on March 12 when it was sold, and closed as high as 9.75/85 percent on March 17.

A 10-year bond maturing on 15.03.2015 closed at 9.60/70 Wednesday, down from 10.12/15 percent on April 10.

It closed at 10.00/20 percent on March 10 and closed as high as 10.10/30 percent.

The 30-year bond was given indicative quotes of11.00/50 percent Wednesday, down from 11.50/75 levels on April 08.

On February 27 it closed at 11.75/12.10 after the auction, where the cut-off rose to 12.50 percent, generating panic and allegations of auction rigging and insider dealing.

Sri Lanka stocks soared 1.16 percent Wednesday with the benchmark All Share Price Index closing 79.9 points higher.