Inflation pushes WAYs by over 100 BPs


Weighted average yields (WAYs) at Wednesday’s (29 June) weekly Treasury (T) Bill auction, this time for the issuance of Rs 77,500 million worth of T Bills, ran amok due to spiralling record high inflation at over 40 per cent, consequent to which WAYs rose by a minimum  of 180 to maximum of 350 basis points (bps).

To further control yield pressure, Central Bank of Sri Lanka (CBSL) sold only 91.83 per cent (Rs 71,169 million) of the original parcel at Wednesday’s auction. Subsequently, the WAYs of the 91, 182, and 364 day maturities rose by 312, 350, and 180 bps each to 23.85, 24.40, and 23.84 per cent at Wednesday’s auction. The fact that the WAY of the 182-day maturity is greater than that of the 364-day maturity is an indication that the market expects yield pressure to continue to the short term, discounting the ‘haircuts’ made in respect of the final sales of the 182 and 364 day tenures, especially in respect of the latter tenure.

Sales at Wednesday’s T Bill auction comprised 104.89 per cent (Rs 39,334 million) of the 91-day maturity compared to its original offer of Rs 37,500 million, 93.29 per cent (Rs 18,658 million) of the 182-day maturity compared to its original offer of Rs 20,000 million and 65.89 per cent (Rs 13,177 million) of the 364-day maturity compared to its original offer of Rs 20,000 million.

CBSL on behalf of the Government of Sri Lanka (GoSL) will have to repay maturing T Bills owed to the market by today (Friday, 1 July) of value  Rs 49,440 million. The splits of the Rs 49,440 million worth of T Bill maturities repayable to the market by tomorrow are Rs 47,652 million 91-day maturities, Rs 1,443 million 182-day maturities, and Rs 345 million 364-day maturities. Maturing T Bills repayable to the CBSL by today are however unknown, as CBSL doesn’t make privy this data.

In related developments, the WAYs of the 2025 and 2028 maturities sharply rose by 347 and 99 bps each to 23.77 and 21.18 per cent at the previous day Tuesday’s  (28 June) record high Rs 150 billion (Rs 150,000 million) T Bond auction led by over a 40 per cent record high inflation.

High inflation is a boost to obtain higher yields to contain inflation. Consequently, CBSL sold only 87.09 per cent (Rs 52,251 million) of the 2025 maturity, compared to its original offer of Rs 60,000 million to cap further yield pressure at Tuesday’s TY Bond auction.

However, CBSL sold the totality of the 2028 and 2031 maturities which were on offer on Tuesday, namely Rs 30,000 and Rs 60,000 million, where the 2031 maturity fetched a WAY of 20.74 per cent. The WAY of the 2031 maturity being less than the 2025 and 2028 maturities and the WAY of the 2028 maturity being lower than the 2025 maturity, shows that there is pressure on the short-term maturities.

Subsequently, CBSL sold only 94.83 per cent (Rs 142,251 million) of all three maturities compared to their total original offer of Rs 150,000 million at Tuesday’s auction.

By Paneetha Ameresekere