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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Market deals in 'swaps', yields rise due to illiquidity

Market deals in 'swaps', yields rise due to illiquidity

Go down  Message [Page 1 of 1]

Melissa Pereira


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
 The exchange rate (ER) continued to remain unchanged at Rs 133.60 to the US Dollar in interbank 'spot' trading for the seventh consecutive market day yesterday amidst Central Bank (CB) intervention on thin volumes, market sources told Ceylon FT.


CB was meeting market demand from its foreign exchange reserves, while 'market-market' deals were done on 'swaps,' they said. The difference in 'spot swaps' as opposed to outright spot sales is that there is an interest component also attached, which the buying banks will have to pay in addition to the 'spot' price to the selling banks. At the conclusion of the swap tenure, those borrowed US dollars have to be returned to the seller in exchange for the equivalent payment made in rupees.



Outright spot sales however, are cheaper for the buyer than 'swap' trades.  Sources said that there was no impact on the market because of the current political goings on, where former President MahindaRajapaksa and his cahoots ultimately obtained nominations on the UPFA ticket to contest the 17 August, 2015 General Election yesterday.
Meanwhile, due to the tight liquidity situation, rates picked up at yesterday's Treasury (T) Bond auction, with the weighted average yield (WAY) of the 2020 maturity increasing by 19 basis points (bps) to 8.39%, while that of the 2022 maturity increased by 57 bps to 9.14%, over WAYs fetched at the previous auction.



The last T Bond auction for these maturities was held only in the previous week, i.e. on 3 July, 2015. Meanwhile, the other maturity on offer, namely the 2021 maturity, saw its WAY decline by 41 bps to 9.08% compared to the yield fetched at the previous auction for this particular maturity. However, sources said that these two yields were incomparable because the previous auction for this maturity was held three months ago in April.



The April T Bond auction was influenced by the controversial T Bond auction held on 27 February, where yields of certain offers, ie those of 30 year maturity which had been on offer, increased by as much as 350 bps to 12.50%, they said. It was an auction where a recent COPE report had made adverse comments on the CB Governor due to the abnormal rise in yields.
Nevertheless, sources said that those low rates prevailing then too were not market determined, having had been obtained through private placements by the previous regime.
Courtesy: Ceylon Financial Times 10 July 2015

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