Sri Lanka bond markets frozen for second day after auction shock

COLOMBO (EconomyNext) – Sri Lanka’s bond markets opened inactive for the second straight day, after a shock yield spike at a 30-year bond auction, but quotes for some maturities have narrowed, dealers said with some direction expected from a Treasuries auction today.

Dealers are also expecting bids for a Treasuries auction, held a day earlier due to a religious holiday this week to be put at higher rates after being caught on the wrong foot Friday where the state debt office accepted up to 900 percent more than the one billion rupee offer of 30-year bonds, sending the yields soaring.

Bond markets were frozen Monday after the weighted average yield at Friday’s auction rose to 11.73 percent from 9.30 to 9.60 percent levels where they had been place off auction in the last few months.

Central Bank Governor Arjuna Mahendran said the 30-year bond was now at levels seen before September 2014. The last public auction was in May at 11.75 percent.

The 30-year bond had then been traded around 12.00 percent, with the cut off yields estimated at around 12.5 percent.

Two-way quotes for a 7-year bond maturing on 2022 had narrowed to 8.20/50 percent levels from 8.30/90 levels earlier, dealers said.

The bond had seen active forward selling last week by one primary dealer.

A 3-year bond maturing in 2018 was quoted around 7.60/8.00 percent Wednesday narrowing from 7.30/90 percent levels yesterday.

There were no active quotes for 4 and 5 year bonds at mid-morning, dealers said.

There was some activity in the bill market in 9 and 12-month maturities.

One year bills were quoted around 6.50/7.00 percent, up from 6.13 percent, at last Wednesday’s auction.