Short-term yield pressure persists

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The distortion where the weighted average yield (WAY) of the 91-day maturity continuing to be higher than that of the longer maturities was repeated for the second consecutive week at yesterday’s Treasury T Bill auction as well, an indication that yield pressure persists in the short-term backed by record high inflation.

Nonetheless, WAYs across the board made declines yesterday, aided by a guided auction and the belief that the Monetary Board will keep policy rates unchanged at the 5 October Monetary Board meeting due to rising non-performing loans in the financial sector.

Consequently, the WAYs of the 91,182, and the benchmark 364-day maturities fell for the second consecutive week to yesterday, declining by 76, 19, and 39 basis points (bps) each to 31.95, 30.63, and 29.87 per cent, respectively.

Subsequently, Central Bank of Sri Lanka (CBSL), the steward of Government of Sri Lanka (GoSL) debt, in a continuous pattern sold nearly double (197.9 per cent or Rs 55,412 million) of the 91-day maturity compared to its original offer of Rs 28,000 million, 182-day, 21.79 per cent (Rs 4,358 million) vis-à-vis its original offer of Rs 20,000 million, and the benchmark 364-day, 30.76 per cent (Rs 5,230 million) from a total of Rs 17,000 million originally offered at yesterday’s auction. Consequently, CBSL sold the total amount originally offered, Rs 65,000 million at yesterday’s auction, following the successful Rs 80,000 million sale in the previous week.

CBSL on behalf of the GoSL will have to repay one of the lowest Treasury T Bill maturities due to the market tomorrow, a total sum of a maximum of a mere Rs 26,856 million only.

A figure lower than this last took place more than a month ago when CBSL on behalf of GoSL had to repay Rs 7,618 million to the market on 19 August 2022. However, maturing T Bills held by CBSL and which also had/will have to be repaid on the due dates, that is, 19 August and 23 September 2022 respectively are unknown, as CBSL doesn’t make such information privy.

The known tenure splits of those maturities which will have to be repaid to the market by tomorrow are 91-day tenures Rs 19,883 million, 182 days Rs 503 million, and 364 days Rs 230 million, respectively. Another Rs 35 million worth of T Bill maturities of unknown tenure/s will also have to be repaid to the market by tomorrow.

Meanwhile, Rs 1,210 million T Bills, in a mix comprising 91, 182, and 364-day tenures also have to be repaid to the market, where the splits of the 91, 182, and 364-day maturities, repayable, have not been segmentalised by CBSL. But the 91-day maturity’s, albeit of unknown quantity, repayment date also falls tomorrow. For convenience, it’s presumed that the repayments of all the Rs 1,210 million maturities are due by tomorrow.  

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 these creditors. Money printing is the sole prerogative of CBSL. CBSL is also the steward of GoSL debt.

By Paneetha Ameresekere