Secondary market yield curve displays unprecedented spike in April

During the month of April, the secondary market yield curve displayed an unprecedented spike over 700bps on short tenor maturities and no rates were quoted for bonds maturing beyond one year.

As the month progressed, the short end of the yield curve edged up significantly while market participants opted to be on the sidelines, according to First Capital Research Monthly Economic Watch May 2022. As the political and economic uncertainty mounted since last month, yields spiked upwards while the weekly bill auction yields continued to further advance.

Out of the four bill auctions held during the month, only one auction was fully accepted whereas out of the two bond auctions held, both were only partially accepted.

Meanwhile, the year on year (YoY ) inflation of Colombo Consumer Price Index (CCPI) for April was 29.8% and has increased relative to the month of March. Food item prices have increased to 46.6% YoY in April 2022 from 30.2% YoY in March 2022 while the Non-Food item prices have increased to 22.0% YoY from 13.4% YoY in March 2022. The contribution from the food category for YoY inflation was 14.69% while the contribution of Non-Food items stood at 15.10% mainly due to the increase in Transport Housing, Water, Electricity, Gas and other Fuels, Restaurants and Hotels, Education and Health. Foreign Reserves declined to USD 1.8 billion in April 2022 relative to USD1.9 billion in March 2022 amidst the soaring import bills and inadequate foreign inflows. Market liquidity remained negative and witnessed a slight volatility during April 2022.