Rate Cut Expectations Hit T Bill WAYs Hard
By Paneetha Ameresekere
Expectations of a rate cut led by ‘COVID-19 uncertainty’ at today’s Monetary Board meeting saw the weighted average yields (WAYs) of the 182 and 364 risk free Treasury (T) Bill tenures fall sharply by 84 and 86 basis points each, week on week to 3.87 and 4.13 per cent respectively at yesterday’s auction.
Subsequently, the full parcel of Rs 40,000 million worth of T Bills was sold by the Central Bank of Sri Lanka (CBSL) to the market. However, the 91-day tenure was not sold to the market at yesterday’s auction.
This is because of market’s expectations that this uncertainty will prevail for at least a couple of months, if not more.
The shorter term 91-day tenure elicited only Rs 4,500 million worth of bids as compared to a massive Rs 78,389 million worth of bids that the ‘longer tenure’ 182 and 364-day T Bills, attracted.
Complementing these developments, Government of Sri Lanka’s (GoSL’s) money printing borrowing costs (MPBCs) sharply fell by 0.56 per cent (Rs 89.15 million) to Rs 15,849.67 million though GoSL’s face value (FV) MP debt stagnated at 554,159.87 million yesterday, a record eleventh consecutive market day that GoSL’s FVMP debt has been stuck at a record Rupees half-a-trillion plus territory due to lack of GoSL revenue.
Meanwhile, market’s net excess liquidity was uplifted by Rs 2,774 million (US$15.05 million or by 1.78 per cent) to Rs 158,189 million yesterday, aided by the settlement/s of CBSL buying US dollars from the GoSL and/or the CBSL swapping rupees for dollars from the market. Transactions between CBSL and GoSL are foreign reserves neutral.
Reflecting these developments, the benchmark ‘spot’ weakened steeply, by 30 cents in two-way quotes yesterday due to ‘no import demand’ led by this uncertainty, yesterday, to be trading at Rs 184.20/30 to the US dollar in two-way quotes at
4:00 p.m. yesterday, market sources told this reporter.
Nonetheless, in the calendar year to 4:00 p.m. yesterday, the ‘spot’ has depreciated by Rs 2.90 (1.60 per cent) in two-way quotes.