Rs 25B T-Bond Auction Fully Subscribed
By Paneetha Ameresekere
Last Friday’s (11) Rs 25,000 million Treasury (T) Bond auction was fully subscribed, with the 2026 maturity for the issuance of Rs 15,000 million treasuries sold at a weighted average yield (WAY) of 7.31 per cent, two basis points (bps) less than its maximum administered yield (MAY) of 7.33 per cent and the 2028 maturity comprising Rs 10,000 million at a WAY of 8.02 per cent, three bps less than its MAY of 8.05 per cent.
On the previous day, Thursday, when Central Bank of Sri Lanka (CBSL) announced this auction, in an acknowledgement of inflationary pressure and uncertainty bedeviling the market, it increased the MAY of the 2026 maturity by eight bps to 7.33 per cent.
This was because in the previous auction held for this maturity, ie in the auction of 29 April 2021, the MAY fixed for this tenure was at a ‘low’ 7.25 per cent, resulting in that auction ending up a damp squib, with CBSL being able to sell only Rs 2,000 million (eight per cent) of the total parcel of Rs 25,000 million originally offered at that auction.
With respect to the 2028 maturity, its MAY was first uplift to 8.05 per cent at the 1 June auction, also an increase of eight bps, when, after its MAY which was previously fixed at 7.97 per cent, ie at the 12 May 2021 auction, that saw only Rs 9,500 million of the original parcel of Rs 10,000 million on offer, sold.
But after its MAY was uplift to 8.05 per cent for the 1 June auction, that saw its parcel of Rs 10,000 million on offer fully subscribed at a WAY of eight per cent, five bps below its MAY of 8.05 per cent. But CBSL and the Government of Sri Lanka (GoSL), aware that discretion is the ‘better part of valour,’ ‘persisted’ in fixing the MAY for the 2028 maturity at a higher cost of 8.05 per cent at Friday’s auction, rather than at a lower MAY of eight per cent, at which ‘low’ price, the parcel on offer at the 1 June auction, also, Rs 10,000 million; was fully subscribed, ipso facto at a ‘lower’ WAY of eight per cent. CBSL/GoSL wants to artificially maintain a low interest rate regime to minimize GoSL’s borrowing costs and to spur growth. CBSL is the steward of GoSL debt.