Foreign portfolio buying drives yields lower on benchmark Bonds

T-Bill rates increase at auction: All Bills sold, Money market liquidity doubles

- By WEALTH TRUST SECURITIES

THE secondary Bond market witnessed a constructive week, with sentiment improving markedly throughout the week, driven by foreign portfolio allocations towards Sri Lankan Rupee Bonds. The week commenced on the back of a flattened yield curve following the outcome of the bond auctions held on 26 June 26.

However, the market subsequently staged a strong two-day rally on Wednesday and Thursday, underpinned by persistent demand from large foreign portfolio buyers. Buying was concentrated primarily on the 15.10.30 (4-year tenor) and 15.03.35 (10-year tenor) maturities. The positive momentum subsequently spilled over to the rest of the yield curve, although the downward adjustment in yields across the remaining maturities was to a lesser extent. The downward rally in the bond market was despite the upward movement in T-Bill yields at the weekly auction. Activity and transaction volumes remained robust throughout the rally, with several sizeable block trades executed.

On Friday, the market paused to consolidate following the sharp gains recorded earlier in the week. Reduced foreign demand and mild profit-taking pressure saw yields edge marginally higher, although overall sentiment remained constructive. In conclusion, secondary market two-way quotes on the 4-year and 10-year bonds were markedly lower, week on week, while the rest of the yield curve noted more modest gains.