Term Week ending 2/10 Week ago One Year ago

Overnight 14.25% 14.00% 13.00%

3 Month’s 14.39% . 13.32% 11.45%

6 Month’s 15.03% 13.62% 12.03%

1 Year 15.33% 15.20% 12.48%

2 Year’s 15.71% 15.38% 12.65%

3 Year’s 16.00% 15.81% 12.79%

4 Year’s 16.15% 15.95% 13.49%

5 Year’s 16.30% 16.20% 13.63%

6 Year’s 16.55% 16.45% 13.65%

Call Money

The continuous pressure on the SLR prompted the Central Bank (CB) to further increase the Rev. Repurchase rate by 0.5% to 16%. The present market shortfall of approximately Rs. 8 billion coupled with the SLR exceeding the CB Selling Rate of 79.49, pushed the overnight rates gradually towards the Central Bank Rev. Repurchase rate.

Treasury Bills

In addition to the usual weekly auction, the CB held an additional Rs. 3 bn auction on 29/9. This extra supply of bills was the primary reason for the 3 and 6 month rates climbing up steeply by 78 and 106 basis points respectively, thus smoothening out the short end of the yield curve. However, the increase in the 12-month rate was marginal.

Treasury Bonds

The increase in the budget deficit and large Government debt maturities prompted the Central Bank to hold two auctions of Rs. 1.25 bn on 28/9 and Rs. 5 bn on 29/9. These additional issues to fund debt maturities affected the current liquidity shortfall adversely, resulting in increases of the 2 and 3 year rates by 33 and 18 basis points respectively.

Corporate Paper

With the current interest rate trend expected to continue into the near future, activity in this market is expected to be weak for some time. Corporates are resorting to other, more traditional forms of borrowings to fund their activities until such time interest rates revert down.

Comparison

The upward shift of the "current curve" has reached what seems to be the highest expected spread of 3%. High increases in the short end of the current curve have enabled the curve to iron out any rough edges to form an evenly upward sloping curve which is healthy for the market.

Overnight rates however should drop further to complete the smooth flow.
— Waldock Mackenzie Limited