Yield curve in steep parallel shift upwards

[First Guy]

* Bond yields increase over 100 basis points week-on-week

Driven by the outcome of the weekly Treasury bill auction at where the weighted average on the 364 day bill was seen increasing for the first time in 56 weeks and the direction outlined for it in the medium term, secondary market bond yields were seen increasing during the week on the back of considerable selling interest, reflecting a parallel shift upwards on the overall yield curve for a third consecutive week.

Activity centered on the eight year maturity of 1 July 2022 and the nine year maturity of 1 January 2024 as its yields were seen increasing to three month highs of 8.80% and 9.00% respectively against its weeks opening lows 7.50% and 7.80%.

In addition, considerable selling interest on the belly end of the yield curve saw three year durations increase to 7.25%, four year durations to 7.75% and five year durations to 7.90% while on the shorter end of the curve, durations centering the one year maturity were seen traded within the range of 6.00% to 6.20%. In secondary bill markets, the 364 day maturity was seen changing hands within the range of 6.00% to 6.20% as well.

Meanwhile in money markets, overnight call money and repo rates decreased during the week to average 6.06% and 5.74% respectively as surplus market liquidity averaged at Rs. 38.97 billion. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of three to seven day term repo auctions at weighted averages ranging from 5.77% to 5.89%. Furthermore it drained out a total amount of Rs. 58.41 billion through three medium term repo auctions as well for durations of 35 days, 56 days and 77 days at weighted averages of 6.01%, 5.96% and 5.99% respectively.

Rupee dips during the week
The rupee on spot next contracts lost ground during the week on the back of seasonal importer demand and foreign outflows on Government securities to close the week at 130.75/85 in comparison to its last week’s closing level of 130.50/55.
Given are the closing forward dollar rates that prevailed in the market: one month – 131.25; three months – 132.10; six months – 133.20.

http://www.ft.lk/2014/10/20/yield-curve-in-steep-parallel-shift-upwards/

[Jana1Top contributor]

I think this is too early to conclude a possible uptrend of interest rate. The trend cannot be identified by close reading of the fortnight treasury bond yield. I may wait another two months to see its possible upward trend..

[suja]

No chance for this. Government will artificially keep the interest down if they have to. Maybe a change of govt will make this tru

[Jana1Top contributor]

No chance for this. Government will artificially keep the interest down if they have to. Maybe a change of govt will make this tru

Why should I need to keep artificially keep the interest down? If they need money they have to borrow from bond mkt. Then interest go up. I dont think they have artificially pushed up last week interest rate. They just only accept 1 year bill while declined others indicate they don't need money and they didnt bother about interst rate going from 5.85 to 6.00. Anyhow 6.00 is rock bottom...

[stocks hunterTop contributor]

In actual terms with regard to int rates still we are rock bottom levels.That is clearly mentioned by the Jana1.

for more - https://forum.lankaninvestor.com/t2304-for-the-people-who-love-int-rates?highlight=for+the+people+who+love+int+rates

[pee ratioActive Member]

adey chee chee, what are your'll saying ah ? you naughty boys you. i know men if curves are good, my yield will defa shift parallel, and will be upwardly sloping.

[jonta999]

Meanwhile in money markets, overnight call money and repo rates decreased during the week to average 6.06% and 5.74% respectively as surplus market liquidity averaged at Rs. 38.97 billion. The Open Market Operations (OMO) Department of Central Bank was seen mopping up liquidity during the week by way of three to seven day term repo auctions at weighted averages ranging from 5.77% to 5.89%. Furthermore it drained out a total amount of Rs. 58.41 billion through three medium term repo auctions as well for durations of 35 days, 56 days and 77 days at weighted averages of 6.01%, 5.96% and 5.99% respectively.

Can somebody explain the monetary mechanism of the highlighted paragraph. Although i have some knowledge regarding Gov securities very much clueless about OMO.

Tx in advance

[Future123Active Member]

What ever happens CFVF and ESL will go up. No one can stop this

Why are we really worried about day-to-day interest fluctuations???? This happens through market mechanism and every day ups and downs are very normal.The interest rates will come down in medium term and will stabilize for a while. The government is fighting to keep it down to improve private sector credit growth and to keep the inflation to lowest levels. The government is forcing the banks to lower the pawning interest rates to 12%.

http://www.lankabusinessonline.com/news/sri-lanka%E2%80%99s-central-bank-asks-banks-to-reduce-pawning-advances-interest-rate/1331081199

[jonta999]

Any help Guys...