The Sunday Leader

Selling Pressure As Banks Book Profit

  • Treasuries

The secondary Treasury market which witnessed a mix of both selling and buying pressure at Thursday’s (December 26) trading which sources said was led mainly by banks wanting to square their books by the year end, was however relatively quiet on Friday, with Treasury (T) Bills and Bonds of under a year’s maturity trading at a yield of 8.01%, unchanged with that of its previous, market sources told this newspaper.
Thursday’s heavy trading was attributed to banks wanting to square their books before the year end.
“With settlements taking place on the “T +2” equation, with  “T” being the transaction date  and settlements having to take place two market days thereafter (“2”), ie tomorrow, Monday December 30, Thursday’s trading would have had meant that banks would have had squared their books, with only one working day remaining (December 31) before the year end.
Volumes on Thursday were huge, the sources said, with banks apparently wanting to finish their transactions by Thursday, without waiting till Friday, December 27; they added.
As a result, the more liquid 1.4.18. weakened to the 9.75/80% level in two way quotes, down from the previous day’s (December 24) closing of 9.65% by Thursday (December 26), the sources said. Likewise the 15.8.18. maturity weakened by between 5-10 basis points (bps) to 9.78/82% in two way quotes, they said.
However there was buying pressure on the one year (December 2014) T Bill maturities which resulted in their yields strengthening by 10 bps to 8.00/8.05% in two way quotes, they said.  But there was selling pressure on T Bonds of under a year’s maturity which fetched a yield of 8.01% at Thursday’s trading, the sources said.

Those tenures previously were hardly liquid, they further said.  They may have had been bought at a period when they were commanding higher yields, the sources said. So exiting at low yields means profit for the seller.
However at the beginning of the week on Monday (December 23), Treasuries on moderate volumes saw the yield of the “more liquid” 1.4.18. tenure strengthen by 10 bps over its previous day’s close (Friday, December 20) to 9.75%, the sources said.
One possible reason for this state of affairs may be the fact that the market is expecting a policy rate cut when Central  Bank of Sri Lanka’s (CBSL’s) Monetary Policy Board meets next month to review its monthly monetary policy (see also the business pages of this newspaper’s 15.12.13. edition).
CBSL is yet to announce when it will release its monetary policy review for January 2014.
On Tuesday (December 24), volatility was experienced in the “more liquid” 1.4.18. maturity, where this maturity, which closed at the beginning of the week on Monday (December 23) at the 9.75% level, strengthening to the 9.50% level at the beginning of trading on Tuesday, before closing weaker at the 9.65% level, sources said.
The fluctuation of the yields of this maturity was seen after Tuesday’s weekly Treasury (T) Bill auction, the sources said. The market didn’t evince much interest in other tenures (other than the 1.4.18. maturity) in secondary market trading on Tuesday, they said.
Meanwhile the weighted average yields of the 91, 182 and 364 day maturities fell by 19, 34 and 24 bps to 7.54%, 7.85% and 8.29% respectively at Tuesday’s primary auction, though market’s excess liquidity witnessed a modest decline, data showed.

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