Rates rise for 5th week
By Paneetha Ameresekere
The money market, scarred by a lack of inflows, saw the weighted average yields (WAYs) of Treasury (T) Bills rise for the fifth consecutive week at yesterday's auction.
As a result, the WAY of the benchmark one year (364-day) T Bill rose sharply by nine basis points (bps) to 10.31%, that of the six-month maturity also by nine bps to 9.89%, while the short-term three-month (91-day) tenure, increased even more steeply by 19 bps to 8.97%.
Central Bank of Sri Lanka (CBSL) which administers such public debt, allowed the Government of Sri Lanka (GoSL) to borrow Rs 23,851 million by issuing/selling T Bills to the market, marginally less than the original borrowing figure of Rs 24,000 million that had been earmarked for such borrowings, yesterday.
Whatever excess liquidity that there is in the money market currently is those supplied by CBSL's purchase of T Bills (money printing) which may give rise to demand side inflationary pressure enveloping the economy.
Ideally, inflows should boost the money market's excess liquidity in the form of debt free enhanced foreign investments, exports and remittances.
Rs 6.7B printed money
In related developments, CBSL printed money to the tune of Rs 6,692 million to meet GoSL's funding needs, yesterday, data showed. As a result, GoSL's interest cost as shown by CBSL's face value (FV) T Bill holdings minus CBSL's book value (BV) T Bill holdings, increased by a thumping 68.26% (Rs 3,943.87 million) to Rs 9,721.47 million, yesterday over Monday, data showed.
Nevertheless, the market enjoyed net foreign inflows or an uplift in net excess liquidity to the tune of Rs 4,884 million (US$ 32.56 million) at yesterday's trading, data further showed. As CBSL deals in 'spot', conversions are based on the current, administered spot rate which is Rs 150 to the US dollar.
Due to these developments, money printing as of yesterday, increased by 18.75% to Rs 363,610.65 million compared to Monday's money printing figure and, excess liquidity increased by 7.31% to Rs 71,681 million at the end of yesterday's trading.
However, CBSL's FV T Bill holdings without taking into consideration standing lending facility rate value (SLFRV) and repos stood unchanged, yesterday over Monday, at Rs 306,963.65 million.
CBSL's FV T Bill holdings as of the previous day Monday (9 January) was also Rs 306,963.65 million. CBSL's FV T Bill holdings are defined as CBSL's book value (BV) T Bill holdings plus the GoSL's interest cost because of such. CBSL BV T Bill holdings as of Monday were Rs 301,186.05 million and the interest cost to GoSL because of such Rs 5,777.6 million.
In related developments, the money market's net excess liquidity as of Monday was Rs 66,797 million. Excess liquidity is defined as the difference between the standing deposit facility rate value (SDFRV) minus SLFRV plus repos.
Meanwhile, money printing is defined as CBSL's FV T Bill holdings minus SLFRV plus repos.
In other developments, the rupee strengthened on the back of inflows, with both one week's and two week's forwards, the popular instruments of trading in the foreign exchange (FX) market these days due to CBSL's moral suasion, each strengthening by 10 cents to close yesterday at Rs 150.25/35 and Rs 150.45/55 to the US dollar respectively, in two way quotes interbank trading.
The 'spot' and the 'spot next' were not seen in the market, they said. However, 'normal' markets devoid of exchange controls, deal in 'spot,' where such dealings are settled after two market days from the date of transaction, whereas in the case of 'spot next' it's three.
Due to such controls, the market deals in one week's and two weeks forwards, for price discovery of the exchange rate.
Down the Gadaren slope
Meanwhile, the stock market after making pyrrhic gains in the last two market days to Monday fell at yesterday's trading on a nominal Rs 344.91 million turnover and 20.8 million share volume (SV).
As a result, the benchmark ASPI declined by 0.05% to 6,152.59 points and the more sensitive S&P SL 20 Index by 0.26% to 3,462.31 points.
Chevron Lubricants, the market's twelfth largest capitalized stock contributed to 59.05% (Rs 203.68 million) of yesterday's total turnover on a 1.31 million SV. Meanwhile, four stocks contributed to 63.31% of yesterday's total SV.
Those were junk stocks Adam Capital and Adam Investments, 7.97 million and 1.88 million respectively, second tier stock SMB Leasing (2.01 million) and blue chip Chevron (1.31 million). Adam Capital's total contribution to the day's turnover was a miserly Rs 11.16 million, Adam Investments Rs 3.75 million and SMB Leasing Rs 1.21 million.
Adam Capital's shares closed, up 7.69% to Rs 1.40 a share, Adam Investments', up 5.26% to Rs two a share, Chevron's, down 1.08% to Rs 156.30 a share and SMB Leasing's, flat at 60 cents a share.
Number of gainers was 54 and losers, 52. Nonetheless, the 'collapses' in share values of stocks such as JKH, the market's largest capitalized stock, Com Bank (its third largest), HNB (seventh largest) and DFCC Bank (sixteenth largest), brought the market down, yesterday.
As the movement of market indices is intrinsically linked to market capitalization (MC), when the share values (SVas) of indices such as Chevron, JKH, Com Bank, HNB and DFCC fall, then, not only do their individual MCs also decline, but also the market's overall capitalization as well.
For instance, JKH's SVa fell by 0.64% to Rs 140.50 a share, that of Com Bank by 1.34% to Rs 140 a share, HNB's by 1.11% to Rs 222.50 a share and DFCC's, down 1.90% to Rs 118.70 a share. Chevron saw its Sva decline by 1.08% to Rs 156.30 a share at the end of the day's trading yesterday.
The local markets are bogged down by the twin evils of rising rates due to a lack of inflows and foreign exits to US based assets because of the uplift in interest rates in the world's largest economy.
In the backdrop of the global financial crisis in 2007, the Federal Reserve System kept its benchmark policy rate, the Fed funds rate (FFR) virtually at zero levels to boost the economy, before raising it eight years later, by 25 bps to be between 25- 50bps in December 2015 due to the recovery of the US economy, and, after another 12 month hiatus, again by another 25 bps last month, for the FFR to be currently at between 50-75 bps.
The possibility of rising interest rates in the USA has been given a further fillip due to President elect Donald Trump's campaign pledges. Those include protectionism, infrastructure spending, tax waivers and deregulation, all of which will give a boost to uplift inflation if implemented. As a result, the Fed is expected to hike the FFR at least thrice this year.
Further, these developments have also resulted in foreign funds exiting from markets such as Sri Lanka and re-parking in US based assets for 'better' returns. These developments have resulted in bringing down the stock market, while at the same time causing downward pressure on the rupee. Also, rising interest rates in the local market have induced local investors to exit from the bourse and re-park assets in the fixed income market for better returns, thereby delivering a double blow to the local stock market.
- Namal slaps CBK with defamation 3345
- Pakistan still eyeing JF-17 Thunder Fighter sale to Sri Lanka 3141
- CID grills govt Printer, Director, others 3178
- LRC seeks Police protection 3134
- MR to meet Tamil and Muslim leaders 3187
- Leprosy hits western province 3140
- skipper of ill-fated boat remanded 3129
- Raggers will be promptly expelled 3151
- Double-speak from SB on Wimal 3155
- VX nerve agent killed Kim Jong-nam 3134
- More snags foul up Constitution making 3254
- NFPWHR warns of massive protest 3131
- Mangala meets US HDP delegation 3138
- SL Police deny ‘hunting’ refugees in HK 3129
- 1500 students denied Uni education 3182
- SLFP CMs to boycott meeting 3129
- Wimal not a party leader – Dayasiri 3131
- New Zealand-bound boat people held 3122
- Pension for disabled ex-soldiers 3123
- Divorce case ends after 18 years 3178
- February – a celebratory month 3110
- Political mayhem 3123
- Significance of Sri Lanka’s legal profession 3114
- Ronaldinho launches soccer academy in China 2211
- French possess fear factor, says Zebo 2218
- UB Finance main sponsor for STC Rugby for 2017 2212
- New circular issued to allow player poaching 2258
- Malinda claims seven scalps 2215
- Trinity destroys Wesley 2225
- ISAC to be held as scheduled 2210
- Rankothge calls it a day 2206
- O'Keefe, Smith apply pressure on India 2200
- SL boys and girls go to next stage 2204
- Thurstan 228 Isipathana 78/3 2200
- Harshakumar re-elected president of TTSC 2203
- Perera sets sights on Clifford Cup final 2222
- Ovin (As)key for Royal 2215
- Ford wants Malinga to return to Tests 2745
- Derailed in Sri Lanka 3654
- Wigneswaran’s irrationality Leading Tamil’s astray 3757
- A tale of woe and courage 3040
- SAITM students will not be accepted by any country– Prof. Hiran Amerasekera 3137
- I have no issues with the Minister– Anoma Gamage 3502
- LG elections should be under new system 3332
- UPS delivery drone has glitch at launch event 2691
- Arik Air investment offer rejected by Ethiopian Airlines 2689
- Facebook confusion over fake cancer babies U-turns 2690
- A guided tour of the cybercrime underground 2687
- Google’s self-driving firm sues Uber 2687
- JTB awarded for promotion of brand Jamaica at Rio Olympics 2691
- India police arrest ‘world’s cheapest smartphone’ firm boss 2698
- Peugeot owner PSA sees profits nearly double 2689
- GAMA: Large-aircraft Market Woes Cause Dive in Billings 2691
- SLIIT students showcase creativity at classical music evening 3001
- ProMate exercise books create new sales record 3007
- PRIMA MANAGEMENT SERVICES – 1st Axis partner to receive Gold 2999
- Australia launches world’s first digital energy marketplace for rooftop solar 3010
- Private mini hydro: Energy generation or willful destruction? 3009
- SAARC Region Anaesthesiology Meeting to be held in Colombo 3023
- Valencia stun Real Madrid 2727
- GSP+ To sustain economy or to Mutate society? 3044
- Fully fledged Media Commission by June – DGI 3076
- Malayalam film - “Orazhcha” (A week) 4553
- Sri Lanka’s Finest Talent – but Who Cares? 4549
- The mesmerizing mystery of Mozart’s music – Mass in C major KV317 (Coronation) 4531
- A Showstopping Performance 4765
- House for Rent 4553
- Footpaths Towards Deconstruction - part 9 4509
- Junsu 1507
- The fate of our woods 1506
- Celebrate ‘A month of love’ 1505
- Five new branch openings 1509
- THINC Sri Lanka Networking Conference 2017 1583
- ‘Our Shop’ for staff welfare 1509
- A musical kaleidoscope 2146
- Challenging the hospitality industry 2161
- Sci-fi action from start to finish 2154
- Helping children in need 2150
- An action soaked 2146
- Health is wealth 2158