91- Day Maturity Hits Record High of 23.21%

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Yesterday’s Treasury T Bill auction saw the weighted average yield (WAY) of the 91 day maturity rising by 350 basis points ((bps) 3.50 per cent) week on week (WoW) to a new record breaking high of 23.21 per cent in the 98- year old T Bill auction’s history, beset with a combination of sustained uncertainty and food inflation at a perennial high figure of over 20 per cent.

The previous high for the 91- day maturity established more than 14 years ago which was 21.30 per cent,  that took place in December 2007 due to uncertainty caused when Sri Lanka was in the amidst of fighting its ‘make or break’ war with the LTTE.

Meanwhile, the 182 and 364- day maturities broke its last week’s record highs by further increasing by 184 and 100 bps (1.84- one per cent) each, WoW yesterday, to 24.77 and 24.36 per cent, respectively. A distortion is that the WAY of the 182 day maturity is greater than that of the 364 day maturity due to Central Bank of Sri Lanka’s (CBSL’s) almost regular interference in T Bill auctions in a vain bid to keep yields artificially low.

Meanwhile, another feature on 20 April’s T Bill auction was that it was the first time after the weekly T Bill auction of 11 May 2021 that CBSL accepted offers of under 100 per cent from the 91- day maturity vis-à-vis its original offer of Rs 47,500 million at this auction.

CBSL accepted only 95.05 per cent (Rs 45,150 million) of the original value offered at yesterday’s T Bill auction for the 91-day maturity, compared to the totality of Rs 101,552 million worth of offers received for this tenure.Previously, ie since the 11 May 2021 auction, CBSL used to accept over 100 per cent of offers made for the 91 day maturity compared to the original values offered to the market for this tenure in a bid to keep yields low.

 Consequently, in totality, CBSL sold only 49.30 per cent (Rs 48,066 million) of the original value of T Bills made for all three tenures to further cap yield pressure at yesterday’s auction. Meanwhile, CBSL sold  only 3.33 per cent (Rs 917 million) and 8.88 per cent (Rs 1,999 million) of the 182 and 364 day maturities offered at yesterday’s auction, compared to their original  values of Rs 27,500 million and Rs 22,500 million made, for these two tenures at the auction to cap yield pressure.

With a total of Rs 97,320 million of all maturities held by the market which will have to be settled by tomorrow, excluding such maturing T Bills of an unknown value also held by CBSL, the latter, while accepting only Rs 48,066 million for all maturities at yesterday’s auction, will have to indulge in another round of demand pull inflationary money printing ending by tomorrow the latest to settle all maturities, in the backdrop of a dearth of inflows.

By Paneetha Ameresekere