Sri Lanka auction and secondary bond yields diverge

ECONOMYNEXT – Yields at a Sri Lanka auction 5, 6 and 8-year bond diverged sharply from the secondary market, data from the state debt office showed, as foreign selling and deficit spending put pressure on bond and forex trading.

The debt office said it sold 3,700 million rupees of 4-year 11-month bonds maturing on 01.06.2020 to yield 8.16 percent, compared to a 01.05.2020 bond sold at auction on June 09 at 8.11 percent.

But in the secondary market 01.05.2020 bonds were quoted at 8.20/35 percent.

The debt office sold 13.3 billion rupees of 6-year 6-month bonds maturing on 01.01.2022 to yield 8.67 percent, compared to bonds maturating on 01.10.2022 bonds sold on June 12, for 8.56 percent.

In the secondary market 01.07.2022 bond were quoted more than 20 basis points higher at 8.90/95 percent.

The debt office also sold 15.3 billion rupees of 08-year 2-month bonds maturing on 01.09.2023 to yield 8.82 percent. Similar maturities were last action on May 29 at 8.78 percent.

In the secondary market bonds were quoted around 20 basis points at 9.02/05 percent.

A higher yield indicates that bonds were cheaper in the secondary market and a sharply higher prices at auction in the past had indicated the mis-use of ‘captive’ funds such as the Employees Provident Fund to suppress interest rates and make beneficiaries suffer losses.

Captive sources were seen in bond markets in recent days on the buying side, trying to keep yields down and buying at high prices dealers said as foreign investors continued to sell.

Foreign holdings of Treasuries fell to 432 billion rupees on June 24 from 435 billion a week earlier. On Monday there were some selling in 01.05.2022 bonds, dealers said.





Last week, interbank liquidity also rose by around 10 billion rupees while the Central Bank’s Treasury bill stock also rose, which is usually indicative of outright monetizing of the deficit to manipulate rates down.

Last week the government sold 327 million dollars floating rate dollar bonds with a settlement date of June 29.

In forex markets the rupee was quoted at 137.70 in the spot market with intervention, but forward rates edged up slightly, dealers said.


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