Sri Lanka TB yields up over 400bp

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Weighted average yields (WAYs) at yesterday’s weekly Treasury (T) Bill auction, this time for the issuance of Rs 70,000 million worth of T Bills, ran amok for the second consecutive week due to spiralling record high inflation at nearly 100 per cent, consequent to which WAYs rose by  over 400 basis points (bps) across the board.

Meanwhile, the Monetary Board will decide yesterday whether or not to increase policy rates, where Central Bank of Sri Lanka’s (CBSL’s) key lending rate currently is at 14.50 per cent.

Subsequently, the WAYs of the 91, 182 and 364 day maturities rose by 423, 434 and 427 bps each to 28.08, 28.74 and 28.11 per cent respectively at yesterday’s auction. The fact that the WAY of the 182 day maturity is greater than that of the 364 day maturity for the second consecutive week to yesterday 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 for the second consecutive week.

Sales splits at yesterday’s auction comprised 123.32 per cent (Rs 43,163 million) of the 91 day maturity compared to its original offer of Rs 35,000 million; 90.34 per cent (Rs 15,809 million) of the 182 day maturity compared to its original offer of Rs 17,500 million and 63.02 per cent (Rs 11,028million) of the 364 day maturity compared to its original offer of Rs 17,500 million, respectively. The total parcel of Rs 70,000 million covering all three tenures at this auction was subsequently sold yesterday.

CBSL on behalf of the Government of Sri Lanka (GoSL) will have to repay Rs 66,554 million worth of maturing T Bills owed to the market by tomorrow, CBSL data showed.

The splits of the Rs 66,554 million worth of T Bill maturities repayable to the market by tomorrow are Rs 63,411 million 91 day maturities; Rs 2,413 million 182 day maturities and Rs 730 million 364 day maturities, respectively. However, T Bill maturities held by the CBSL and which are also repayable to it by tomorrow are unknown as CBSL doesn’t make privy such data.

Issuing of T Bills and T Bonds is a popular way that GoSL raises money domestically to meet its monetary needs. Investing 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 prerogative of CBSL. CBSL is the steward of GoSL and its foreign reserves.

By Paneetha Ameresekere