Rising yields halted by market distortion

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Treasury (T) Bill weighted average yield (WAY) gains for eight consecutive weeks across the board were reversed at yesterday’s auction, aided by Central Bank of Sri Lanka (CBSL), the steward of Government of Sri Lanka (GoSL) debt, accepting only Spartan amounts of the 182 and 364-day maturities compared to the original amounts on offer.

CBSL accepted only 4.52 per cent (Rs 1,107 million) of the 182-day maturity and 37.27 per cent (Rs 7,641 million) of the 364-day maturity, compared to the original offers of Rs 24,500 million and Rs 20,500 million, at yesterday’s auction. Consequently, the WAYs of the 182 and 364-day maturities declined by 81 and 27 basis points (bps) each to 23.96 and 24.09 per cent, Week-on-Week (WoW), yesterday.

However, CBSL accepted an abnormally high amount of 91-day maturities, 185.30 per cent (Rs 78,752 million) compared to its original offer of Rs 42,500 million at yesterday’s auction. Subsequently, the WAY of the 91-day maturity increased by 32 bps WoW to a record high 23.53 per cent at yesterday’s auction, beating its previous record of 23.21 per cent established only last week.

Market distortion is further amplified by the fact that of the Rs 79,168 million worth of maturing T Bills which CBSL has to settle by tomorrow, Rs 77,393 million comprised 91-day maturing T Bills and Rs 1,775 million, 364-day maturing T Bills. There are however no 182-day maturing T Bills which CBSL has to honour by tomorrow. Settlement of yesterday’s T Bill auction is also tomorrow.

Meanwhile, CBSL sold the total amount of Rs 87,500 million of all maturities offered at yesterday’s auction, aided by the 91-day maturity comprising 90 per cent of this total sale. Issuing of T Bills and T Bonds is a popular way that the GoSL resorts to, to raise money from the market to meet its financial needs.

In other developments, retail interest made the bourse to make some gains yesterday, after previously losing out for five consecutive market days, which saw the ASPI increase by 5.43 per cent to 7,280.52 points and the S&P SL 20 Index by a record 10.85 per cent to 2,356.71 points on a Rs 2.18 billion turnover over a 144.60 million share volume.

Yesterday also saw the bourse enjoy nominal net foreign inflows for the eighth consecutive market day, with this time’s figure being Rs 37.15 million. However, in the calendar year to yesterday the bourse has suffered a net foreign outflow of Rs 1.54 billion.

By Paneetha Ameresekere