WAYs rise to record highs across the board

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Weighted average yields (WAYs) at Tuesday’s ( 12 July) weekly Treasury (T) Bill auction rose for the third consecutive week to record highs in T Bill issuances 98-year history across the board  due also to record high inflation at nearly 100 per cent. Sri Lanka (Ceylon) first started issuing T Bills in 1924.

Subsequently the WAYs of the 91, 182 and 364-day maturities rose by 303, 227 and 176 basis points (bps) each to 32.11, 31.01 and 29.87 per cent respectively, beating their previous highest 28.08, 28.74 and 28.11 per cent made only at last week’s (6 July) T Bill auction.

The fact that the WAYs of the shorter tenure 91-day maturity is higher than both the 182 and 364-day maturities and also the fact that the WAY of the 182-day maturity is greater than that of the 364-day maturity at yesterday’s auction are indications 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 at yesterday’s auction.

Consequently sales splits at Tuesday’s auction comprised 155.79 per cent (Rs 49,853 million) of the 91-day maturity compared to its original offer of Rs 32,000 million made to the market; 10.92 per cent (Rs 1,802 million) of the 182-day maturity compared to its original offer of Rs 16,500 million and 12.48 per cent (Rs 2,059 million) of the 364-day maturity compared to its original offer of Rs 16,500 million, respectively.

Of the total parcel of Rs 65,000 million covering all three tenures made at this auction on Tuesday, only 82.63 per cent (Rs 53,714 million) of this original offer was subsequently sold to the market yesterday, to rein in further rate pressure.

Issuing of T Bills and T Bonds is a popular way that Government of Sri Lanka (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, Central Bank of Sri Lanka (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 debt and its foreign reserves.

By Paneetha Ameresekere