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T-Bill yields rise for second consecutive week

Ceylon Today | 23 Aug 2019

By First Capital Research

Weekly yield movement & Volume

During the week, secondary market witnessed selling interest from both local and foreign counter parties, except on Tuesday (20), which saw buying interest across the board. Moreover, on 21 Wednesday, prior to the bill auction, market witnessed buying interest in certain maturities, resulting in yields reaching intraday lows.

However, subsequent to the bill auction outcome, the market witnessed selling interest leading to downward movement in yields while closing at their intraday highs.

At the weekly primary bill auction, weighted average yields were seen increasing across the board compared to the last week. The three-month bill was accepted at a weighted average of 7.84 per cent, while the six-month was accepted at 7.89 per cent after a lapse of one week. Furthermore, the market favourite one-year bill increased by 14bps to be accepted at a weighted average of 8.31 per cent.

During the week, short-term maturities fell by 10-35bps, and mid tenors came down by 1-8bps, while on the long end of the curve, yields dipped by 5-10bps amidst the overall market witnessing moderate volumes.

Liquidity & CBSL Holdings

Market liquidity continued to remain positive throughout the week to close at LKR 22.5Bn. CBSL holdings declined towards the end of the week to record at LKR 82.9Bn relative to LKR 106.1Bn held at the beginning of the week.

Foreign Interest

Foreign holding in Government Securities remained almost stable at LKR 136.5Bn levels while foreign holding percentage also maintained at 2.5 per cent.

Maturities for next week

The Government Security Market needs to settle a treasury bill maturity amounting to LKR 12.2Bn and a coupon payment of LKR 22.7Bn during the week ending 30 August 2019.

Daily Summary

Thursday (15.08.19): In the secondary bond market, yield curve shifted upwards amidst the selling interest from both local and foreign counterparties while the overall market witnessed moderate volumes. Foreign selling was mainly centred on [01.08.21], [15.05.23], [15.12.23] and [15.06.24] maturities with its yields trading at 8.73 per cent, 9.58-9.60 per cent, 9.70-9.75 per cent and 9.82-9.91 per cent respectively. Moreover, in the long end of the curve, [15.01.27] saw its yields trading between 10.05-10.10 per cent.

Friday (16.08.19): Secondary market yield curve edged slightly upwards with both local and foreign selling on selected maturities, while the overall market witnessed moderate volumes. Foreign selling was seen on the short end of the yield curve, with [01.05.21], [01.08.21], [15.10.21] and [15.12.21] trading at the day’s high of 8.75 per cent, 8.78 per cent, 8.95 per cent and 8.90 per cent, respectively. Both local and foreign selling was seen on [15.03.23] and [15.07.23] both at 9.70 per cent, [15.12.23] at 9.75 per cent and [15.06.24] at 9.95 per cent. In addition, selling interest was seen on long tenure maturities, with [01.08.26] at 10.00-10.06 per cent levels, while [15.01.27] changed hands at 10.05-10.15 per cent levels.

Monday (19.08.19): The secondary bond market witnessed continuous foreign selling interest, resulting in the overall yield curve shifting upwards amidst the market witnessing high volumes. With selling interest, short tenor [01.05.21] and [01.08.21] both reached an intra-day high of 9.15 per cent, while [15.12.21] saw its yields increasing to a day’s high of 9.20 per cent.

Tuesday (20.08.19): Reversing the selling interest witnessed the secondary market yield curve saw buying interest across the board while overall market witnessed moderate volumes ahead of weekly T-bill auction.

On the short end of the yield curve buying interest was seen on [01.05.21], [01.08.21] and [15.10.21] trading at 9.02 per cent, 9.00 per cent and 9.10 per cent, respectively. Mixed activity was seen on [01.07.22] changing hands at 9.45-9.30 per cent levels with foreign selling and local buying. Buying interest was also seen on the three 2023 maturities, [15.03.23], [15.07.23] and [15.12.23], trading at day’s low of 9.65 per cent, 9.69 per cent and 9.80 per cent, respectively; in addition, [15.03.24] and [15.06.24] traded at 10.02-9.90 per cent levels.

Wednesday (21.08.19): Prior to the bill auction, the secondary bond market witnessed buying interest resulting in short tenor maturities [01.05.21], [01.08.21] and [15.12.21] reaching intraday lows of 8.85 per cent, 8.90 per cent and 8.95 per cent, respectively. Furthermore, amidst buying, mid tenor [01.07.22] traded at 9.25 per cent, [15.07.23] at 9.60 per cent and both [15.03.24] and [15.06.24] at 9.90 per cent.

However, subsequent to the weekly bill auction outcome, where the one-year bill was seen further increasing by 14bps to 8.31 per cent from 8.17 per cent, the secondary market witnessed selling interest resulting in yields of [01.05.21] reaching 8.95 per cent, while [15.07.23] traded at 9.70-9.75 per cent levels.

Accordingly, the overall yield curve at the end of the day remained broadly unchanged, with the market witnessing low activity levels with thin volumes.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and equity market performance – 22.08.2019

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Dimantha Mathew, Head of Research at First Capital commenting on the bond and equity market performance

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market performance – 21.08.2019

Stock Brokers Sri Lanka

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market performance

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

First Capital says chances high for CB to hold rates steady on Friday

Daily Mirror | 21 -08 – 2019

A leading equity research house in the country believes the Central Bank will maintain the key policy rates at their current levels this Friday amid pick up in credit growth and expansion in the industrial production following April 21 Easter attacks.

The Central Bank kept policy rates at the last monetary policy review in July after cutting 50 basis points in on May 31 to support faltering growth.
First Capital Research expects a 70 percent probability for the continuation of current policy stance while allowing the impact of previous rate cut to be materialized and 30 percent probability for a rate cut amid the slower economic growth.
Sri Lanka’s economy grew 3.7 percent in the first quarter and was expected to grow 4 percent this year.
However, following the Easter attacks, the Central Bank cut the growth forecast to 3 percent, while maintaining that growth will accelerate in the fourth quarter.
Manufacturing and services sector activities expanded in both June and July compared to May, signaling a quick recovery from the Easter bombings that paralyzed almost all the sectors of the economy. Meanwhile, credit growth and lending slightly picked up in June as private credit grew Rs.63.2 billion in June—the highest credit growth for the year after contracting for two months in a row.
First Capital Research expects the Central Bank to impose cap on lending rates to support the revival of demand for credit by the private sector and the recovery of economic activity.
However, high level of non-performing loans in the system is expected to delay the downward adjustment of lending rates.
The Central Bank has already slapped deposit rate caps on banks. “These steps, in our view, are likely to get transmitted into lower lending rates in the banking system towards 4Q19,” First Capital Research said.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

CB to keep policy rates unchanged: First Capital

Daily FT | 21. 08. 2019

  • External vulnerabilities and time lag of earlier easing to keep rates static 
  • Rate cut in 4Q possible to spur growth amidst elections  
  • Manufacturing and services sectors returning to normal 
  • Lending cap from CB expected, reserves to remain strong 

First Capital Research yesterday said it expects the Central Bank to keep its policy rates unchanged when it announces its latest monetary policy stance on Friday given external vulnerabilities and time needed for previous easing to come into effect but predicts a rate cut in the fourth quarter.

With manufacturing and credit signalling signs of recovery and the subsequent vulnerabilities affecting the external outlook of Sri Lanka, First Capital Research believes that the Central Bank may delay the monetary easing while also allowing the impact of previous rate cut to materialise, it said in a policy update.

“Accordingly, we assign a higher probability of 70% for a neutral policy stance at the upcoming policy meeting. Considering the slowness in the revival of economic growth, we would not rule out a possible lending rate cut though presently at a lower probability. Thereby, we maintain our August expectation of a 30% probability for a 25 bps rate cut for the SLFR as mentioned in our previous report. However, we are more biased for a rate cut towards 4Q2019,” it said.  Frist Capital Research said despite the Easter Sunday attacks, Sri Lanka’s economic outlook has shown signs of resilience and ability to recover as economic activities were seen returning to normalcy. As per the Purchasing Manager’s Index, manufacturing activities expanded at a higher rate in June, recording an index value of 53.9 which is an increase of 3.2 index points, compared to May.

This expansion in manufacturing PMI is mainly attributable to the recovery in Employment, especially, in manufacturing of food and beverages and textiles and wearing apparels sectors, from the lower employment availability experienced after the Easter Sunday attacks.

Services sector recovered in June from its lowest level recorded in May, which was mainly caused by the Easter Sunday attack. The recovery in Service activities is mainly attributable to expansion in New Businesses and Business Activity, and Expectations for Activity. Moreover, the industrial production of the manufacturing sector for the 2Q2019 increased by 0.6% to 103.4 relative to 102.8 in 2Q2018.

Following four months of declining fortunes, the LMD-Nielsen Business Confidence Index, shored up by 19 basis points to register 81 in June as the country is gradually emerging from the events that occurred towards the end of April. However, in July it dropped to 74 and it remains below its 12-month (89) as well as all-time (127) averages as the country has already begun preparing for the Presidential Election due at the end of the year.

“Private sector credit picked up in June to Rs. 63.2 billion, the highest credit growth for the year after contracting for two months in a row. In response to the measures taken previously, market deposit rates have declined although the transmission of recent easing of monetary conditions to market lending rates, including AWPR, is not yet complete.

“The high level of NPL in the system is expected to delay the downward adjustment in lending rates. However, in order to accelerate the reduction in lending rates, we expect CBSL to impose a cap on lending rates, thus supporting the revival of demand for credit by the private sector and the recovery in economic activity. These steps, in our view, are likely to get transmitted into lower lending rates in the banking system towards 4Q2019.

“The Government is expected to issue Request for Proposals to raise $ 500 million via Samurai bonds, which may boost reserves and enable finance debt repayments. The tender board must be first approved by the Cabinet and is expected take approximately one to two weeks to get through all the administrative procedures. With the foreign reserves at $ 8.3 billion as at July, the raising of $ 500 million is likely to support to maintain reserves around the $ 8 billion mark throughout the rest of 2019.”

On the external front, The Federal Reserve cut its rates for the first time since 2008 by 25bps ranging from 2.00% -2.25% to provide more support to the economy. First Capital Research expects slower growth and rising risks will impel the Fed to cut rates further before the end of this year. The anticipation comes as Goldman Sachs just announcing that it reduced its GDP projections by 0.2% and Bank of America Merrill Lynch said it sees increasing chances of a recession in the next 12 months.

As trade tensions escalate and economic indicators weaken, Wall Street is beginning to anticipate more aggressive interest rate cuts from the Federal Reserve. Following the US rate cut, India, Philippines, and New Zealand also cut their policy rates citing growth concerns. Central banks in a number of other countries including Malaysia, Russia, Ukraine, Nigeria, South Africa, Egypt, Brazil and Paraguay also lowered interest rates recently.

“Although, lower US rates and eased monetary conditions worldwide was expected to assist Sri Lanka in attracting more foreign inflows, heavy foreign outflows have occurred in the recent two weeks with dollar bonds and rupee bonds spiking across the yield curve.

“Global trade tensions and heightened political uncertainties due to the upcoming elections are expected to have influenced foreign investors to revert back to the safe haven of the US Dollar and other less risky asset classes. Thereby, the rupee also has shown signs of weakness continuously depreciating over the last four weeks.”

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and equity market performance – 20.08.2019

Dimantha Mathew, Head of Research at First Capital commenting on the bond and equity market performance – 20.08.2019

1-Yr T-Bill rises for first time in 6 months

Ceylon Today | 18 – 08- 2019

By First Capital Research

Weekly Yield Movement & Volume

At the weekly primary bill auction, the three-month bill was accepted at a weighted average of 7.80 per cent, while the six-month was rejected after five months. Furthermore, reversing the previous trend, the benchmark one-year bill increased for the first time in six months by 6bps to be accepted at a weighted average of 8.17 per cent. Post bill auction, selling interest was witnessed primarily centred on the short end of the yield curve, while the market favourite one-year T-bill was seen trading higher at 8.20 per cent.

Though there was no major reaction following the bond auction, mixed activity was seen on [15.06.24] at 9.75-9.70 per cent levels, [01.08.26] at 9.90 per cent and [15.01.27] at 9.95 per cent.

During the week, short-term maturities fell by 10-12bps and mid-tenors came down by a mere 2-4bps, while on the long end of the curve, yields dipped by 3-8bps amidst the overall market witnessing limited activities with thin volumes.

Liquidity & CBSL Holdings

Market liquidity continues to remain positive and closed at Rs 27.49 billion. CBSL holdings marginally improved to Rs 106.1 billion relative to Rs 105.7 billion held at the beginning of the week.

Foreign Interest

Foreign holding in Government Securities decreased by Rs 729 million to record at Rs 136.5 billion. Foreign holding percentage was maintained at 2.5 per cent.

Maturities for next Week

The Government security market needs to settle a Treasury bill maturity amounting to Rs 18.0 billion during the week ending 23 August 2019.

Daily Summary

Thursday (08.08.19): The secondary market remained broadly unchanged, with the overall market witnessing limited activities with thin volumes ahead of the bond auction on 09 August 2019, which offered Rs 15.0 billion with maturities of eight years and nine months, and 20 years, respectively. With the slight buying interest, short-tenor [01.05.21] traded at 8.50 per cent, while [15.10.21] traded in the range of 8.70-8.65 per cent. [15.12.21] traded at 8.70-8.69 per cent, while [01.10.22] traded at 8.95 per cent. Mid-tenor [15.06.24] saw its yields trading between 9.77-9.75 per cent. Moreover, [01.08.26] traded at 9.95 per cent, while long-tenor [15.01.27] traded at 10.00 per cent.

Friday (09.08.19): The secondary market yield curve shifted slightly downwards, while overall market witnessed moderate volumes. On the shorter end of the curve, buying interest was seen on [01.08.21], [15.10.21] and [15.12.21] trading at 8.53 per cent, 8.55 per cent and 8.60 per cent, respectively, while [01.10.22] traded at 8.85-8.80 per cent levels and [15.07.23] at 9.43-9.40 per cent levels. Mixed activity was seen on [15.06.24] at 9.75-9.70 per cent levels, [01.08.26] at 9.90 per cent and [15.01.27] at 9.95 per cent. At the primary bond auction, [01.05.28] and [15.08.39] were accepted at weighted averages of 10.00 per cent and 10.29 per cent, respectively.

Tuesday (13.08.19): At the primary bill auction held on 13 August, the three-month bill was accepted at a weighted average of 7.80 per cent, while the six-month was rejected after five months. Furthermore, reversing the previous trend, the benchmark one-year bill increased for the first time in six months by 6bps to be accepted at a weighted average of 8.17 per cent.

In line with the bill auction outcome, the secondary market witnessed selling interest, while overall market witnessed low volumes with limited activities. Selling interest was seen on the shorter end of the curve with [01.08.21], [15.10.21] and [15.12.21] trading at 8.55-8.65 per cent levels, [15.07.23] at 9.50 per cent, and [15.06.24] at 9.78-9.80 per cent levels, while foreign selling was also seen on [15.12.23] at 9.57 per cent levels. Post bill auction, the one-year T-bill was seen trading higher at 8.20 per cent.

 

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market – 18.08.2019

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market – 18.08.2019
First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.
First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.
 

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market performance – 15.08.2019

stock market sri lanka

Hiruni Perera, Senior Research Analyst at First Capital commenting on the bond and equity market performance #CSE#CBSL#lka.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. 
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

 

Atchuthan Srirangan , Assistant Manager – Research at First Capital commenting on the bond and equity market performance -13.08.2019

Invest in Sri Lanka

Atchuthan Srirangan , Assistant Manager – Research at First Capital commenting on the bond and equity market performance -13.08.2019
 First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research deliver heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.
First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. 
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.