Local markets driven by the twin evils of record high inflation and persistent political uncertainty saw Central Bank of Sri Lanka (CBSL) rejecting offers made by the market for the 2025 maturity at yesterday’s Rs 35,000 million Treasury
T Bond auction.
As a pyrrhic consolation, CBSL sold 84.78 per cent (Rs 16,955 million) of the other maturity, ie the 2029 maturity out of Rs 20,000 million originally on offer at a weighted average yield (AY) of 26.91 per cent, though on the whole it sold only 48.44 per cent of the original offers made for both of these parcels at yesterday’s auction. The 2025 maturity offered yesterday comprised a total value of Rs 15,000 million.
In the immediately preceding T Bond auction, held on 28 July, CBSL sold a total of Rs 50,000 million worth of T Bonds comprising 2025 maturities of Rs 20,000 million in value and 2031 maturities of Rs 30,000 million, respectively.
At the 28 July auction, the WAY of the 2025 maturing T Bond rose by 27 basis points (bps) to 28.45 per cent, compared to a WAY of 28.18 per cent fetched at the 11 July auction. However, the other maturity offered at the 28 July auction, 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, indicating that pressure on yields are on the “shorter” term maturities.
Nonetheless, yesterday’s 2029 maturity’s WAY of 26.91 per cent, 300 bps more than the WAY of 23.91 per cent fetched for the WAY of the 2031 maturity, is a reflection that uncertainty now os endemic, regardless of the tenures of the Treasuries.
Issuing of T Bills and T Bonds is a popular way that the Government of Sri Lanka (GoSL) raises money from the domestic 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. Money printing is the sole prerogative of the CBSL. CBSL is also the steward of GoSL debt.
Central Bank of Sri Lanka (CBSL) on behalf of the Government of Sri Lanka (GoSL) will be issuing Rs 35,000 million worth of Treasury T Bonds to the market on Wednesday, the splits of which are Rs 15,000 million worth of 2025 maturities and Rs 20,000 million worth of 2029 maturities, respectively.
. 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.
By Paneetha Ameresekere.