ECONOMYNEXT – Sri Lanka’s bond yields have moved up sharply over the past three weeks, after two bond auctions that established yields closer to market despite substantial money printing to keep rates down, data show.
Countries with central banks generate balance of payments crises, by keeping interest rates down with printed money or releases of liquidity allowing the banking system to give a higher volume of loans than the deposits created, generating unsustainable extra imports.
On Thursday overnight call money was traded around 6.50 percent and was quoted at 6.30/40 percent before a reverse repo auction was announced to print overnight money, dealers said. A 10 billion rupee overnight cash auction was announced for Thursday.
On Wednesday some market participants borrowed 1.37 billion rupees from the 7.5 percent liquidity window.
In forex markets the rupee reference rate was announced at 134.75 to the US dollar up from 134.50 a day earlier.
Bonds were quoted around the same levels as yesterday, with some maturities up about 5 basis points from Wednesday’s closing, dealers said.
But bond yields were sharply up from the levels seen on August 14 when substantial corrections to Sri Lanka’s interest rate structure, which is needed to counter an expanded budget deficit started to gather pace, despite money printing.
A 2-year bond (15.05.2017) was quoted 7.70/90 up from 7.10/15 on August 14, dealers said.
Other bond yields on Thursday September 03 compared to August 14 are as follows.
3-year bond (01.06.2018) quoted at 8.60/80 percent up from 8.77/80
5-year bond (01.05.2020) quoted at 9.70/90 percent up from 8.36/42
8-year bond (01.09.2023) 10.20/30 percent up 9.26/28
11-year bonds (01.06.2026) 10.55/65 percent, not traded last month.
10-year bond (01.08.2025) 10.4/55 percent up from 9.55/60.
20-year bond no quotes
30-year bond (01.03.2045) 10.50/11.50 percent (wide indicative quote) up from 10.40/11.00.(Colombo/Sept03, 2015 – correected bond yeild)