Short-end yields drift higher as long end remains anchored

Foreign holdings of Rupee treasuries increase Total money market liquidity increases

- By WEALTHTRUST SECURITIES

THE secondary Bond market last week started off slowly, as market participants adopted a wait and see approach ahead of an action-packed week. Activity was shaped by anticipation of the sixth and final Monetary Policy Announcement for the year 2025, together with a series of back-to-back Treasury Bill and Bond auctions conducted throughout last week. Yields were initially seen consolidating at prevailing levels, as trading followed a sideways pattern fluctuating in a narrow band.

On Wednesday (26 November), following the Monetary Policy Announcement, the secondary Bond market saw yields increase, mainly on the short end of the yield curve. However, the long end of the yield curve continued to consolidate and hold broadly steady.

The Central Bank of Sri Lanka (CBSL) decided to hold the Overnight Policy Rate at 7.75%. This marked the third consecutive monetary policy decision to keep rates on hold. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), which are linked to OPR with predetermined margins of + 50 basis points, also remained unchanged at 7.25% and 8.25%, respectively. The statutory reserve rate was left unchanged at 2%.

Subsequently, on Thursday after the outcome of the Treasury Bond auction, where rates came in below market expectations, the market continued to consolidate. On Friday, at the tail end of the week, as the effects of Cyclone Ditwah rocked Sri Lanka with adverse weather, market activity was seen at subdued levels and yields on the shorter tenors edged up further, while the long end held firm.

The Treasury Bond auctions conducted on Thursday (27 November) produced remarkable outcomes registering weighted averages below prevailing secondary market yields. The auction was comprised of two maturities with a total offered amount of Rs. 42 billion.

Maturity wise the results were as follows: