Sri Lanka 3-month Treasuries yield rise 49bp at auction

ECONOMYNEXT – Sri Lanka’ 3-month Treasury bill yields rose 49 basis points to 8.56 percent at Wednesday’s auction up from 8.07 percent two weeks ago, data from the state debt office showed, giving support to the rupee.

The 12-month yield rose 46 basis points to 9.51 percent.

The debt office, which is a unit of the central bank offered 3.0 billion rupees of 3-month bills and accepted 1.8 billion rupees and accepted 3,302 billion rupees of bids.

Analysts say in the past the central bank had perpetuated balance of payments crises by intervening in Treasury bill auctions, buying bills held by banks with printed money by rejecting real bids to increase rupee reserves in banks and manipulating the yield curve downward up to 3-months or more.

But if the three month rates are market-determined it will support the rupee, long time watchers of Sri Lanka’s unstable soft-peg say.

Last week an entire auction was rejected generating fears that money would be printed up to three months or more, keeping not only overnight rates down but further down the yield curve.

Any money printed into the banks by taking Treasury bills of banks, into the balance sheet of the central bank then end up as credit imports in the forex market, while loan-to-deposit ratios of lenders deteriorate.

However the central bank injected term money only up to 7 days and kept the overnight market short, by over 30 billion rupees, generating more support for the rupee. Overnight markets have been short for the past 7 days.

The faster the rupee pressure ends, the faster people can get back to normal work, and interest rates can normalize, analysts say.

Bond yield have risen in recent days amid liquidity shortages. The auction also narrowed the gap between bills and bonds. (Colombo/Sept26/2018)





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