ECONOMYNEXT – Sri Lanka bond yields gained in a partially frozen market as interest rates edged up following a rate hike, dealers said and there were no bids for the first repo auction in 17 months to drain excess liquidity from money markets.
On Tuesday only 2023 and 2024 bonds were quoted and there were no interest in longer maturities, as market took stock of the repurchase auction announcement an earlier hike of a de facto policy rate, dealers said.
A bond maturing on 15.11.23 closed at 6.95/7.05 percent Tuesday up from 6.80/90 percent a day earlier.
A bond maturing on 01.12.24 closed at 8.00/8.05 percent up from 7.85/95 percent, a day earlier.
On Wednesday a weekly bill auction had been called where a ceiling rate which acts as a de facto policy rate to print large volumes of money was raised by 55 basis points to 5.93 percent.
The chances of a full subscription would have been higher if the de facto 12 – month rate had been raised before the 5.50 percent policy rate, market participants said.
The central bank called an 8.0 billion rupee repo auction to take back excess liquidity which has been short or more or less in balance since August 13 from high levels when over 200 billion rupees in excess liquidity was sloshing in the market in January.
The liquidity had now disappeared in forex reserves losses (an external drain).
On August 24, at the first repo auction since March 2020, there were no takers. Plus banks were however holding 117.8 billion rupees in the central bank’s 5.50 percent window and short banks had borrowed 107 billion rupees from the 6.0 percent window.
In money markets the overnight gilt-backed repurchase rate had moved up to 5.75 percent by August 24, from 5.14 percent on July 30.
The clean call money rate of banks had moved up from 5.10 to 5.77 percent. (Colombo/Aug25/2021)