Panic Buying in Treasuries Continues for 6th Day

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Government of Sri Lanka’s (GoSL’s) money printing borrowing costs (MPBCs) fell for the sixth consecutive market day yesterday (13), with yesterday’s decline being a sharp 3.88 per cent (Rs 4,177.06 million) to Rs 103,529.46 million over its Friday’s (10) figure due to sustained buying pressure of riskless, low returns Treasury T Bills and T Bonds in secondary market trading because of perennial uncertainty, rather than investing in high returns to the private sector.

In contrast, GoSL’s face value (FV) MP debt decreased much more slowly,  by a mere  0.28 per cent (Rs 7,979.90 million) to  Rs 2,848,738.74 million (Rs 2.8487 trillion)  yesterday, proof that that was not the main reason for the sharp depreciation in GoSL’s MPBCs. Meanwhile, yesterday’s decrease in GoSL’s FVMP debt aided to marginally defray demand-pull l inflationary pressure.

Market’s net shortfall  decreased by 0.38 per cent (Rs 2,603 million) to Rs 678,233 million, led by a liquidity  increase  of Rs 10,582.90 million (USD 29.39 million) during the course of trading yesterday, dominated by the settlement of transactions between the GoSL and the Central Bank of Sri Lanka (CBSL). Conversions are based on the administered benchmark “spot” value of Rs 360.03 to the US dollar as at Thursday (9).

 GoSL’s FVMP debt has been over Rs 2 trillion for a record 95 consecutive market days to yesterday due to an almost perennial lack of revenue. The market has been short for a record 185 market days to yesterday. GoSL’s highest to the 189th highest FVMP debt has been registered for a record 189 market days to yesterday. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings. MP is the exclusive right of CBSL.  GoSL’s MPBCs are prorated to the outcome in secondary market trading of T Bills and T Bonds on the reference day.

“Spot” trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and its foreign reserves deals in “spot.” The “spot” is administered to minimize GoSL’s foreign debt in rupee terms and lower the cost of “essential” imports, while “essential” imports are met from the country’s foreign reserves and not from the market to prevent further depreciative pressure on the rupee as Sri Lanka is an import dependent economy. CBSL lacks transparency in its open market operations.  Transactions between CBSL and GoSL are foreign reserves neutral.

By Paneetha Ameresekere