Rs 150B Treasury Bond Auction, Largest-Ever

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Central Bank of Sri Lanka (CBSL), on behalf of the Government of Sri Lanka (GOSL), will make its largest-ever Treasury (T) Bond issue to the market in an auction on Tuesday to the value of Rs 150 billion, to meet GoSL’s huge borrowing appetite, CBSL data released yesterday (23) showed.

The previous highest, issued in three T Bond auctions were Rs 120 billion each, issued in the
T Bond auctions of 26 July 2021, 8 December 2021, and March 2022. Meanwhile, the splits of Tuesday’s T Bond auction are Rs 60 billion each of 2025 and 2031 maturities and Rs 30 billion T Bond maturities.

Complementing these developments, GoSL’s at least theoretical money printing borrowing costs (MPBCs) relative to the decrease in its face value money printing (FVMP) debt decelerated by 1.13 per cent (Rs 1,096.49 million) to Rs 95,737.84 million yesterday, led by buying pressure of riskless, low returns T Bills and T Bonds in secondary market trading, rather than lend to the high returns private sector, the engine of growth, due to sustained uncertainty.

Meanwhile, GoSL’s FVMP debt marginally fell by 0.02 per cent (Rs 721 million) to Rs 2,884,029.85 million (Rs 2.8840 trillion) yesterday, having a parsimonious impact in reducing demand-pull inflationary pressure, while market’s net shortfall  increased by 0.19 per cent (1,211 million) to 638,859 million.

In related developments, liquidity declined by Rs 490 million (US$ 1.35 million) for the settlement of ‘essential’ import payments like medicines, paid from the country’s foreign reserves yesterday. Conversions are based on the benchmark, but officially administered ‘spot,’ which was fixed at Rs 361.75 to the US dollar as at Tuesday (21 June).

GoSL’s FVMP debt has been over Rs 2 trillion for a record 102 consecutive market days to yesterday due to an almost perennial lack of revenue. The market has been short for a record 192 market days to yesterday. GoSL’s highest to the 196th highest FVMP debt has been registered for a record 196 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 minimise 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

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