CSE News Updates

REUTERS: Foreign investors have been shifting to Sri Lanka’s treasury bills while selling longer tenure T-bonds, the latest central bank data showed on Friday, as a rise in U.S. Treasury yields has prompted many offshore investors to rush to the exits.
Foreign investors bought a net Rs. 6.67 billion ($ 51.97 million) in T-bills in the three weeks ended on 19 June, while they sold a net Rs. 5.66 billion worth of T-bonds in the same period, the data showed.
Foreign holdings in T-bills rose 9.9% to $ 576.94 million and fell 1.3% in T-bonds to $ 3.31 billion in the same period, the data showed.
“Foreign investors are preparing to exit and that is the reason why they are now gradually shifting to short-term government securities,” a currency dealer said on condition of anonymity.
“For foreigners, Sri Lankan securities are still risky assets despite a return of well above 10%. With the U.S. Treasury yields rising, they want to exit from these markets.”
The Sri Lankan rupee sank to a more than six-month low on Friday for a second time in six sessions, with some foreign investors booking forwards to hedge their exposure, dealers said.
Central Bank Governor Ajith Nivard Cabraal, however, has said the fall in the currency is no cause for concern as foreign investors have been changing their positions rather than pulling out of the island nation’s bond market.

June 24, 2013 (LBO) - Sri Lanka had sold 90 million US dollars of 3-year bonds at premium of 400 basis points above the London Interbank offered Rate and 164 million US dollars of 5-year bonds at 415 basis points above Libor, the state debt office said.
The debt office, which is unit of the Central Bank said 50 million US dollars of 3-year bonds and 25 million in 5-year bonds paying a 6-month coupon above Libor was offered but orders were much larger.

The Central Bank had accepted all bids. The Libor rate Monday was 0.4138 percent, the Central Bank said.

The so-called dollar denominated Sri Lanka Development Bonds are popular among domestic banks and other investors who are allowed to have foreign currency assets.

In March 2013 Sri Lanka also sold 3-year bonds at 400 basis points.

Corrected/headline total US$254mn

June 24, 2013 (LBO) - Sri Lanka's foreign reserves rose 168 million US dollars to 6,858 million US dollars in April 2013 from 6,689.50 million US dollars in March, Central Bank data showed.
The central bank said gross official reserves were equal to 4.4 months of imports.

In April a state-run bank raised money abroad and the Central Bank which saw its Treasury bill stock also spike, started to cut it with outright sales in the second half of the month. Selling down the domestic asset portfolio of the bank, allows foreign reserves to rise.

Official foreign reserves in Sri Lanka are made up of the Central Bank's monetary reserves as well as fiscal reserves.

Reserves can also change due to valuation effects including cross currency movements or the price of gold.

June 24, 2013 (LBO) - Sri Lanka's bond yields spiked further Monday as some foreign investors sought to shorten the maturity of their positions, dealers said but there was no significant outflows, officials said.
The yield on a popular 5-year bond maturing on 2018 spiked to as much as 11.70 percent, from Friday's 11.48 levels, before closing at 11.60/63 percent levels, amid foreign selling, dealers said.

There have been large outflows from other emerging markets as the US dollar strengthened and long term yields rose.

Central Bank Governor Nivard Cabraal said the overall total foreign bond holdings were steady at around 12.5 percent of total holdings.

"Within the limit there are buyers are sellers. It always happens," Cabraal said." We have had new investors coming from the Middle East. Japanese investors are coming into our bonds."

Amid higher international risk perceptions foreign investors have sought to minimise risks by shortening maturities and also covering their forward forex risks.

Foreign investor holdings of Treasury Bills rose to 74 billion rupees on June 19 from 70.5 billion rupees on June 12 as Treasury bond holdings fell from 417 billion rupees to 424 billion rupees.

"That is a call that investors can take," Governor Cabraal said. "We like it where there is trading. It shows the depth in the market and liquidity. And investors would also be happy that there is a market being created."

As the 5-year bond rose to 11.70 percent Monday there were bids in the market from a large state fund, dealers said.

In the secondary market one year bills were quoted around 10.80/85 percent, but they could edge slightly lower amid stronger interest from foreign investors, some dealers said.

In the forex markets the spot US dollar closed at Spot closed 128.85/90 levels, after being quoted weaker at 128.85/129.05 levels in morning trade.

There was sporadic state selling to selected banks from a state lender that usually acts for the monetary authority, dealers said.

Analysts say the current weakness of the rupee is partly due to pressure from about 20 billion rupees in excess liquidity that is generating demand. Liquidity can be killed either by dollar sales or Treasuries sales by a Central Bank.

Market excess liquidity dropped to 9.2 billion rupees Monday from 14.2 billion on Friday.

Dollar sales by central bank that kills liquidity (unsterilized sales) helps strengthen an exchange rate.

But dollars sales which are followed by liquidity injections (sterilized sales) adds new demand and can put further pressure on a currency.

Bond purchases by a Central Bank, or liquidity given by a monetary authority to banks or primary dealers to buy bonds can also weaken the exchange rate and generate balance of payments pressure.