WAY of shorter term maturity shoots

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Central Bank of Sri Lanka (CBSL) surrendered to yield pressure on the shorter term maturities led by multiple reasons, resulting in the weighted average yield (WAY) of the 2025 maturing Treasury Bond rising by 27 basis points (bps) to 28.45 per cent at Thursday’s (28) auction, compared to a WAY of 28.18 per cent fetched at the 11 July auction.

CBSL sold the total parcel of Rs 20 billion worth of 2025 maturities offered at yesterday’s auction compared to a mere Rs 3,548 million (11.83 per cent) of this tenure sold at the 11 July auction where a total of Rs 30 billion was offered to the market.

However, the other maturity offered on Thursday,  the 2031 maturity, fetched a WAY of 23.91 per cent, less than the WAY of 28.45 per cent fetched for the 2025 maturity, confirming that pressure on yields are on  the “shorter” term maturities .  Consequently, CBSL sold the totality of Rs 30 billion of 2031 maturities offered at yesterday’s auction.

This pressure on shorter term maturities is due to record high inflation coupled with sustained political uncertainty, among others. High inflation is an impetus for higher yields to counter inflationary pressure.

Issuing of T Bills and T Bonds is a popular way the Government of Sri Lanka (GoSL) raises money from the market to meet its needs. Investments 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.

By Paneetha Ameresekere