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Daily report for the 29th January 2025 – Courtesy Wealth Trust Securities Ltd
- Monetary Policy Announcement: CBSL Holds Rates
- 3-Month T-Bill Rate Falls to over 3-Year Year Low; Rs 182.50 Bn Auction Fully Subscribed
- Secondary Bond Market Rallies Ahead of Rs 40 Bn T-Bond Auction
- Rupee Continues to Appreciate
At the inaugural Monetary Policy Announcement for 2025, the Central Bank of Sri Lanka (CBSL) decided to hold all key rates unchanged. In particular, the monetary policy rate, the Overnight Policy Rate (OPR) was maintained at the current level of 8.00 per cent. In addition, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), which are linked to OPR with pre-determined margins of ± 50 basis points, remain unchanged at 7.50 per cent and 8.50 per cent, respectively. The statutory reserve rate also remained at 2.00%.
As per the official press release for the previous MPA: The Board arrived at this decision following a careful analysis of the current and expected macroeconomic developments on the domestic and global fronts. This decision was made with a medium-term view of ensuring that inflation converges to the target of 5 per cent, while supporting the economy to reach its potential. The Board observed that the current period of deflation, as projected earlier, has largely been an outcome of administratively determined energy price reductions. This trend is expected to continue over the next few months before inflation begins adjusting towards the targeted level in the second half of 2025.
Despite this, at the weekly Treasury Bill auction held yesterday, the weighted average rates declined across all three offered maturities for the 8th consecutive week. As such rates were seen continuing on a downward trajectory, with a reduction in yields observed on at least one tenor over the last 12 weeks. Accordingly, the weighted average rates on the 91-day tenor dropped by 19 basis points to 7.93%, the 182-day tenor by 16 basis points to 8.09% and the 364-day tenor by 16 basis point to 8.47%. This week’s drop was particularly steep with the rate on the 3-month tenor falling to an over 3-year low, falling below 8.00% for the first time since late December 2021.
Total bids received exceeded the offered amount by 2.62 times, and the entire Rs 182.50.00 billion on offer was successfully raised at the 1st phase in competitive bidding.
The 2nd phase of subscription for the auction will be opened across all 3 tenors at the weighted average rates until close of business of the day prior to settlement (i.e., 3.00 pm on 30.01.2024). Given below are the details of the auction;
The secondary bond market yesterday saw yields decline on the back of renewed demand, as the impressive outcome of the Treasury Bill auction sparked a rally. Activity and transactions volumes were seen at elevated levels. Aggressive buying interest was observed across the yield curve resulting in a marked reduction in rates across tenors.
The yields on the 2026 tenors, which had consistently been on a downward trajectory, were seen dropping further. The 15.12.26 maturity was seen trading at down the range of 9.16%-9.12%.
The 01.05.27 and 15.09.27 maturities were seen trading down the ranges of 9.65%-9.55% and 9.70% respectively. The early 2028 tenor 15.02.28 and 15.03.28 maturities were seen trading down the range of 10.12%-10.10% and 10.18%-10.13% respectively. The mid-2028 tenor 01.05.28 and 01.07.28 were seen changing hands down from intraday highs to lows of 10.28%-10.25% and 10.35%-10.30% respectively. The late-2028 tenor 15.10.28 maturity was seen transacting down the range of 10.41%-10.38%. The 15.09.29 maturity traded between intraday highs and lows of 10.88% to 10.85%. The 15.10.30 maturity changes hands down the range of 11.36%-11.30%.
This comes ahead of the Treasury Bond auction, with a total offered amount of Rs. 40.00 billion, scheduled for today January 30 (this Thursday). The auction will be comprised of:
- Rs. 25.00 billion: Maturing on December 15, 2029, with a coupon rate of 11.00%.
- Rs. 15.00 billion: Maturing on June 01, 2033, with a coupon rate of 09.00%.
For context, the previous round of Treasury Bond auctions held on 09th January, raised Rs. 179.25 billion, or 94.34% of the Rs. 190.00 billion offered, despite bids exceeding the offering by 2.06 times. Maturity-wise:
The 15.10.28 maturity (11.00% coupon) saw strong demand, raising the entire Rs. 60.00 billion offered at a weighted average yield of 10.42%.
The 15.10.30 maturity (11.00% coupon) raised the entire Rs. 80.00 billion offered at a weighted average yield of 11.23%.
The 01.11.33 maturity (9.00% coupon) achieved a weighted average yield of 11.47%, in line with market expectations, but raised only 78.50% or Rs. 39.25 billion across both phases.
The total secondary market Treasury bond/bill transacted volume for 28th January 2025 was Rs. 27.16 billion.
In money markets, the weighted average rates on overnight call money and Repo stood at 7.99% and 8.07% respectively.
The net liquidity surplus stood at Rs. 184.05 billion yesterday. No funds were withdrawn from the Central Banks SLFR (Standing Lending Facility Rate) of 8.50%, while an amount of Rs. 184.05 billion was deposited at the Central Banks SDFR (Standard Deposit Facility Rate) of 7.50%.
Forex Market
In the Forex market, the USD/LKR rate on spot contracts closed the day depreciating to Rs. 296.40/296.70 as against its previous day’s closing level of Rs. 297.05/297.15.
The total USD/LKR traded volume for 28th January, 2025 was US $ 116.98 million.
(References: Central Bank of Sri Lanka, Bloomberg E-Bond trading platform, Money broking companies)