Weighted average yields (WAYs) across all three tenures at yesterday’s weekly Treasury (T) Bill auction rose sharply for the second consecutive market week due to rising record high inflation of 66.7 per cent registered last month. High inflation gives a thrust for rates also to increase to combat money circulation. Consequently, the WAYs of the 91, 182 and the benchmark 364 day maturities rose by 107, 55 and 69 basis points (bps) each week on week (WoW) to 30.51 per cent, 29.51 per cent and 29.14 per cent and 29.83 per cent, respectively. Due to a mix of Central Bank of Sri Lanka (CBSL) controls and yield pressure on the shorter tenure 91 day maturity, the WAY of the 91-day maturity was higher than the WAY of both the 182 and 364-day maturities, which is also a market distortion, a phenomenon witnessed at yesterday’s auction.
In order to further bridle yield pressure, CBSL sold only 63.01 per cent (Rs 56,713 million) compared to the original offer of Rs 90,000 million made at yesterday’s auction. In the connection, the sales splits comprised 88.18 per cent (Rs 38,801 million), 41.66 per cent (Rs 9,582 million) and 36.22 per cent (Rs 8,330 million) compared to the original offers of Rs 44,000 million made for the 91 day maturities and Rs 23,000 million each for the 182 and 364-day maturities offered at yesterday’s auction. Meanwhile, CBSL, on behalf of the Government of Sri Lanka (GoSL) will have to repay a total of Rs 66,561 million worth of maturing T Bills to the market by tomorrow (Friday,26 August).
Of this value, CBSL has divulged the tenures of Rs 60,561 million worth maturing T Bills only. In respect of the balance Rs 6,000 million worth of maturities repayable to the market, CBSL, however, hasn’t divulged their tenure/s. The splits of the tenures of the Rs 60,561 million maturities are Rs 60,116 million worth of 91 day maturities, Rs 245 million (182 day maturities) and Rs 200 million (364 day maturities), respectively. However, T Bill repayments due to CBSL by tomorrow are unknown as CBSL doesn’t also divulge such figures.
Issuing of T Bills and T Bonds is a popular way that GoSL raises money domestically to meet its monetary needs. T Bill auctions are generally held weekly. 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 also the steward of GoSL debt.
BY Paneetha Ameresekere