364 Day Yield To Fall 15 B.P.S

Shift from term deposits to stock investments (Shihar Aneez)

The interest rate market is on the declining or stagnating trend, and certainly not in the ascent, a market source told The Sunday Leader.

He predicted that this week’s primary Treasury (T) Bill auction would see the benchmark 364 day T Bill falling by 15 basis points (b.p.s) week on week (w.o.w.) to 9.15%, in tandem with yields commanded in secondary market trading.

Last week yields for this issue declined by16 b.p.s to 9.30% in the primary auction.
“In the ceasefire period in 2003 yields for this tenure went down to as low as 7%, now that ‘permanent’ peace has been secured, there is no reason why yields should not fall even lower,” the source said.

“For two months the Central Bank of Sri Lanka (C.B.S.L.) protected this benchmark yield at 9.47% by rejecting higher bids, indicating to the market that they don’t want yields to go beyond that level, that resistance is now paying off, with yields now on the decline,” he said.

The market is liquid and with private sector credit still slow, it has no option other than to park its excess money in T Bills, resulting in yield declines, the source added.

Though the point to point change in inflation is on the rise, the moving annual average inflation at 3.5% is still at manageable levels, the source said. Their respective figures last month were 5.8% and 3.4%.

In the foreign exchange (forex) market, with the market awash with U. S. dollars, the pressure is for the rupee to now appreciate, with the dollar in two way quotes commanding prices of Rs. 113/80/95.

During the Avurudhu period the reverse occurred, with the pressure then being for the dollar to appreciate at the expense of the rupee, the source said. C.B.S.L. has been playing the dual role of either protecting the dollar or the rupee from depreciating as the circumstance demanded, currently their role is the former, the source said.

Bourse

Meanwhile despite Friday’s half holiday in lieu of May Day falling yesterday, the Colombo stock market recorded over a Rs. one billion turnover, despite poor foreign visibility.

A lot of money which was previously tied down to term deposits is now finding its way to the bourse due to falling interest rates, a source said. Foreign absence may be due to the fact that they find Colombo too expensive, searching for cheaper substitutes such as African markets, he said.

Colombo is being driven by local activity.

“With the war behind us, there is no other way other than conditions to further improve,” the source said.

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