Sri Lanka long bond yields plunge
ECONOMYNEXT – Sri Lanka’s bond yields extended falls Friday falling as much as 150 to 200 basis points in three days, giving large book profits to primary dealers, with more money also being injected to keep short term rates low.
On Friday key maturities auctioned at high yields hours before a monetary policy meeting froze rates, saw some of the sharpest falls seen in the history of the country’s bond market. The fallls were expected, the steepness of the fall was a surprise to some market participants.
The falls were also helped by a statement released hours after the auction seeking managers to sell up to 3.0 billion dollars of sovereign bonds.
When yields fall, the bond price goes up.
A 2014 bonds maturing on 15.05.2030 which was sold at an average yield of 14.23 percent was quoted as low as 12.55/80 percent Friday before moving up to 12.90/13.05 percent.
For each billion held by a primary dealer there is a 78 million rupee capital gain on a 2030 bond bought at 14.23 percent and sold a 12.80 percent. But the cut-off rate for the bond is estimated around 14.80 percent.
But until retirement funds start buying it is not easy to sell large volumes of bonds.
Selected bond yields at late afternoon Friday trade was as follows:
01.02.2018 – (11.75) many 40/70
2-year bonds maturing on 01.04.2018 were quoted around 11.30/60 percent.
3-year bonds maturing on 01.07.2019 (auctioned at 11.75) were quoted around 11.60/90 percent.
4-year bonds maturing on 01.05.2020 fell to around 11.90/12.00 percent before rising to 12.00/10 percent
5-year bonds maturing on 01.08.2021 (auctioned at around 13.00) yield fell to 12.15/25 percent before picking up to 12.15/30
9 -year bond maturing on 15.03.25 were quoted around 12.70/85 percent.
10-year bond maturing on 01.06.2026 (auctioned at 13.93) were quoted around 12.80/90 percent.
12-year bonds maturing on 01.09.2028 bond maturing on (13.72) were quoted around 12.80/75 percent.
14-year maturing on 15.05.2030 (auctioned at 14.23) fell as low as 12.60/80 and rose to 12.90/13.05 percent. (Colombo/Apr01/2016)
Kithmina Hewage- Institute of Policy Studies