The weighted average yield (WAY) of the 2025 maturity sharply increased by 341 basis points (bps) to 28.18 per cent at yesterday’s Rs 70 billion Treasury (T) Bond auction egged on by a near 100 per cent inflation, coupled with the Central Bank of Sri Lanka (CBSL) raising policy rates by 100 bps on Thursday.
To rein in further yield pressure, CBSL, the steward of Government of Sri Lanka (GoSL) debt sold only 11.83 per cent (Rs 3,548 million) of the original offer of Rs 30 billion of this tenure made to the market yesterday. In the immediately preceding T Bond auction held on 28 June 2022, the 2025 maturity fetched a WAY of 23.77 per cent.
However, CBSL, sold the totality of the 2029 maturity offered at yesterday’s auction, a sum of Rs 40 billion at a WAY of 26.51 per cent. Meanwhile, at the 28 June auction, CBSL didn’t offer the 2029 maturity to the market, the closest of this tenure offered at that auction being the 2028 tenure which fetched a WAY of 21.18 per cent.
Meanwhile, the fact that the WAY of the 2025 maturity being higher than that of the 2029 maturity at yesterday’s auction, resulting in an inverted yield curve, shows that the market expects yield pressure to persist in the short term, before tapering.