Secondary Bond market rallies; Yields drop

■Money market liquidity increases; crosses Rs. 200 b mark ■Foreign buying continues for a second consecutive week ■Primary T-bill and bond market produces inspiring outcomes; Demand spills over to second phases ■Rupee see-saws; Closes down marginally

- BY WEALTH TRUST SECURITIES

THE Secondary Bond market rallied last week, with yields declining on the back of strong buying interest. This bullish momentum was driven by the Central Bank of Sri Lanka’s decision to reduce the Overnight Policy Rate by 25 basis points the previous week. The rally continued through most of the week, though some profit taking towards the end led to a slight reversal in sentiment. Nevertheless, secondary market two-way quotes ended the week significantly lower. Market activity remained robust, with healthy transaction volumes and several notable block trades being recorded.

The downward rally in yields was further supported by the significant rise in prevailing liquidity surplus in the money market, as the overall liquidity surplus was seen increasing to Rs. 203.79 billion by the end of the week against its previous weeks Rs. 157.78 billion. In addition, the drop on the 364-day bill weighted average by 31 basis points at the weekly Treasury Bill auction added further impetus to the downward rally in bond yields.

Furthermore, the foreign holding in Rupee Treasuries recorded a net inflow for the second consecutive week, amounting to Rs. 2.49 billion and as a result the total holding increased to Rs. 92.71 billion as at 29 May.