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Sri Lanka bond yields, overnight rates down after liquidity injections

ECONOMYNEXT – Sri Lanka’s bond markets were active after a ceiling rate cut, which was followed up with tens of billions of rupees worth of cash injections below the ceiling rate, which has left money markets flushed with printed money, dealers said.

On Tuesday ahead of a bill auction, bonds were trading 30 to 60 basis points, below levels seen before the 25 basis point ceiling rate cut.

A 2-year bond maturing 01.05.2020 was quoted at 9.65/75 Tuesday, down from 9.85/10.05 percent on April 03

A 5-year bond maturing on 15.03.2023 was quoted at 10.03/10.08, down from 10.62/68 percent.

A 10-year bond maturing on 01.09.2028 was down to 10.35/40 percent from 11.00/03 percent a week ago.

The central bank cut the ceiling policy rate after money markets ran short of liquidity amid a seasonal festival draw-down of cash and tax changes which saw overnight rates spiking to 8.65 percent from 7.85 percent.

The central bank cut the ceiling rate on April 04 and also signalled clearly that it would like to see less volatility on the overnight rate and started printing money to keep rates down.

On April 06, the central bank injected 25 billion rupees at an average yield of 8.23 percent until April 23.

Money markets were 40 billion rupees in excess by April 08 and the central bank’s Treasury bill stock had risen to 73 billion rupees.  In March the central bank also released cash mopped up through term repos, as demand for notes went up.

The weighted average overnight repo rate was down to 7.95 percent on April 09, from 8.45 percent before the rate cut and liquidity injections. The maximum rate was down to 8.15 percent from 8.60 percent.





The clean money rate was also down to 7.92 percent, from 8.49 percent on April 03, with almost no risk premium for the lack of gilt backing. The anomaly came after tax changes on gilts which came into effect on April 01. (Colombo/Mar10/2018)

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