Sri Lanka bond yields fall after rate cut

Sri Lankan Police forming a human chain in parliament to protect the Speaker and enable a vote.

Jan 13, 2009 (LBO) – Sri Lanka bond yields plunged Tuesday and recovered to settle lower than a day earlier, following a cut in the unrestricted discount window rate of the central bank by 200 basis points overnight, dealers said. The 01.04.2012 bond started at 18.90/19.0 percent levels, fell to 18.65/75 levels and went up to 19.40/54 percent levels.

A bond maturing on 15.01.2013 fell from 19.10 to 18.75 and closed around 18.70/90 percent levels.

A government bond maturing on 01.04.12 fell to 17.45 percent from 18.90, and came back up to 18.00/18.25, dealers said.

A bond maturing on 15.12.10 which was trading around 19.75 percent Monday plunged to 17.50 percent and settled at around 18.75 percent in morning trade.

“In general bond yields seem to be around 100 basis points lower than yesterday,” a dealer told LBO.

The central bank cut its penal discount window of 19.0 percent to 17.0 percent.

The unrestricted window sets an upper limit on overnight rates, though some banks who are reluctant to borrow at the ‘penal’ rate may buy money at higher rates from the market.

The Central Bank also has a 12.0 percent window with restricted access, as well as open market auctions when the markets are short on a net basis.

In money markets call rates were around 12.50/12.45 percent levels from around 13.00/13.25 percent a day earlier, dealers said.

The spot dollar was trading quoted at 113.85/114.00 rupees.

Sri Lanka’s usually staid bond markets also see-sawed Friday, with foreign banks active in the market, dealers said.

In December interbank markets turned liquid after the Central Bank loosened its defence of a dollar peg.

Dealers also said there was a flight to quality as jittery lenders went for bonds after exiting private securities and finance firms.