Uncertainty lowers GoSL’s borrowing costs

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The market led by sustained uncertainty fully subscribed yesterday’s Rs 98,000 million weekly Treasury (T) Bill auction, which, in size, equals the largest ever T Bill auction held, preferring to invest in riskless, low returns T Bills, rather than invest in the high returns private sector, the engine of growth, despite inflation being at over 30 per cent.

Consequently weighted average yields (WAYs) across the board fell for the fourth consecutive market week to yesterday, with the WAYs declining by 118, 101 and 109 basis points each , week-on-week to 20.73, 21.90 and 22.04 per cent, in respect of the 91, 182 and the benchmark 364-day maturities.  In this connection, Central Bank of Sri Lanka (CBSL), the steward of Government of Sri Lanka (GoSL) debt, oversaw the subscription of 149.08 per cent (Rs 67,087 million), 61.92 per cent (Rs 15,479 million) and 55.12 per cent (Rs 15,434 million), compared to the original parcels of Rs 45,000 million; Rs 25,000 million and Rs 28,000 million offered, in respect of the 91, 182 and 364-day maturities at yesterday’s auction.

Meanwhile CBSL on behalf of the GoSL will have to repay maturing (T Bills of Rs 77,878 million in total value to the market by Friday, CBSL data showed. Friday is also the settlement date of yesterday’s auction.

The splits that will have to be repaid to the market by Friday are Rs 54,808 million worth of 91-day maturities, Rs 22,795 million worth of 182-day maturities and Rs 275 million worth of 364 day maturities, respectively. However, T Bill maturities held by the CBSL and which will also have to be repaid by Friday are unknown as CBSL doesn’t make public such statistics. Last week too CBSL’s T Bill auction was Rs 98,000 million in size, which too was fully subscribed.

 Issuing of T Bills and T Bonds is a popular method resorted to, by the GoSL to raise money domestically to meet its monetary commitments. Investments in T Bills and T Bonds are risk free, because in the event GoSL is unable to honour such debt, CBSL is mandated to print demand pull inflationary money and repay such creditors. Money printing is the sole and mandated prerogative of CBSL.

By Paneetha Ameresekere