Sri Lanka bond markets inactive ahead of auction

ECONOMYNEXT – Sri Lanka bond markets were inactive ahead of a 40 billion rupee bond auction on Thursday where 5 and 14 year bonds were on offer.

The debt office offered 20 billion rupees of 4-year 9-month bonds maturing on 15 July 2018. The bond was last quoted around 11.25/35 percent, up from around 9.90/93 percent before the current run on the rupee began.

Also offered are 14-year 3-month bond maturing on January 15, 2018.

The bond was last quoted around 11.25/75 percent levels. It was quoted at 10.35/65 percent levels on August 31 before the current run on the rupee began and unsterilized excess liquidity shot up over 50 billion rupees, generating a run on the rupee.

Sri Lanka’s bond actions have a coercive sale stage where gilt dealers are forced to purchase some bonds after the central bank decides a cut off rate. There are fears that some dealers could go out of business, if they are forced to buy bonds at low rates.

Forced purchase bonds sold at the last auction are now trading at much higher yields.

On Wednesday Treasury bills yields rose sharply at the auction which was rejected earlier. The 3-month yield rose to 9.28 percent from 8.56 percent. The 12-month yield rose to 10.19 percent from 9.51 percent on September 26. (Colombo/October 11/2018)

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