Monday Markets: Selling Pressure Dominates Treasuries
By Paneetha Ameresekere
Selling pressure of Treasury T-Bonds and T-Bills in secondary market trading dominating for the second consecutive market day to yesterday saw Government of Sri Lanka’s (GoSL’s) at least theoretical money printing borrowing costs (MPBCs) once more sharply increasing, this time by 3.20 per cent (Rs 1,337.63 million) to Rs 43,150.29 million.
Selling pressure is caused by the market wanting to invest in today’s Rs 20 billion T-Bond auction for better returns as it’s the first auction after 16 months that Central Bank of Sri Lanka (CBSL) has not specified maximum administered yields (MAYs), inferring that they are allowing the market to determine yields to an extent, this time.
The money market was short for the fifteenth consecutive market day to yesterday, thereby causing persistent rate pressure, with market shortfall increasing by 1.39 per cent (Rs 2,784 million) to Rs 203,396 million. Liquidity decreased by Rs 33,254 million (US$ 166.35 million) during trading due to the settlement/s of GoSL’s foreign debt servicing costs and/or CBSL’s swaps with the market and/or CBSL’s US dollar sales to GoSL yesterday. Conversions are based on Thursday’s administered value of the benchmark ‘spot’ which was Rs 199.90 to the dollar.
Dead 102 Days
The interbank foreign exchange (FX) market was ‘dead’ for 102nd consecutive market day to yesterday, with all trades in the FX market, ipso facto made worse by bank-client trades too, since midnight on 6 September having to be executed under a controlled exchange rate (ER) regime of between Rs 200-203 to the dollar, thereby aiding in the spawning of a black market. Even at the controlled ER of Rs 203, the ER will have had depreciated by 7.69 per cent (Rs 14.50) in the calendar year to Friday and year on year (YoY) by 9.58 per cent (Rs 17.75), thereby causing cost-push inflation as Sri Lanka is an import dependent economy.
As at 31 December 2020, in the interbank FX market, beginning with ‘cash’ and going up to “one week’s forwards,” the ER was trading at a seemingly inflated value of Rs 187.50/188.50 to the dollar in two way quotes due to CBSL controls, while a year ago due to lesser controls, the benchmark ‘spot’ was trading in the market at Rs 185.15/25 to the dollar in two way quotes.
NFOs Increase to Rs 44B
Bourse suffered net foreign outflows (NFOs) for the sixth consecutive market day to yesterday due to persistent uncertainty with a figure of Rs 722.56 million recorded on that day, increasing NFOs to Rs 43.95 billion in the calendar year to date, a year on year increase of Rs 5.43 billion (14.09 per cent). In the 175 market days that have transpired in the calendar year to yesterday, the bourse has suffered NFOs in 153 (87.43 per cent) of those days due to nagging uncertainty.
Last year the bourse suffered a record Rs 51.04 billion worth of NFOs. In the 207 market days that transpired last year, the bourse suffered a record NFOs in 90.82 per cent (188) of those days. Nonetheless, the bourse made pyrrhic gains for the fourth consecutive market day to yesterday, with the benchmark ASPI increasing by 3.69 per cent to 9,269.65 points and the more sensitive S&P SL 20 Index by 2.04 per cent to 3,416.12 points over Friday on a Rs 6.77 billion turnover and on a share volume of 202.76 million. GoSL’s foreign debt servicing commitments are met from the country’s foreign reserves and not from the market, because if met from the market that would cause depreciative pressure on the rupee as Sri Lanka is an import dependent economy. MPBCs are prorated to the weighted average yields fetched in secondary market trading of T-Bills and T-Bonds.