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Sri Lanka debt office sells 38-pct more bonds than offered

ECONOMYNEXT – Sri Lanka’s central bank accepted up to 38 percent higher volumes than offered in 5 and 7 year bonds, according to auction data from the debt office, seemingly going back on a promise to conduct transparent auctions without misleading potential bidders.

Market participants say the move may have prevented rates from falling further.

The central bank offered 4.0 billion rupees of 4 year 08 month bonds maturing on December 15, 2021 and accepted bids of 5,520 million rupees, or 32 percent higher than offered.

The bonds were sold at a weighted average yield of 12.60 percent, down from 12.84 percent paid for a close maturity on March 01, 2017.

The central bank also offered 4.0 billion rupees offered 4.0 billion rupees of 06 year 09 month bonds, and accepted 5,920 million rupees of bids, or 38 percent higher than offered.

The bond were sold at an average yield of 12.92 percent down from 13.14 percent paid to close maturity on March 15.

The debt office rejected all bids for 9 year 04 months bond for which 3.5 billion rupees of securities were offered, further confusing markets.

Market participant say the central bank is returning to the non-transparent auction practices of misleading bidders with false signals.

The central bank had earlier promised not to accept much higher volumes than offered, ending the practice of misleading investors. 

Problems of switching between maturities also occurs in Treasuries auctions, forcing bidders to speculate and engage in guessing games, market participants say.





Analysts had said Sri Lanka has in the past also taken more bonds than offered, misleading investors and delaying rate adjustments downward when either state borrowings reduced (budget deficits narrowed) or private credit eased, delaying a recovery in the economy.

While the central bank engaged in financial repression accepting less than offered and rejecting bids, at the first half a credit cycle, generating balance of payments, trouble, it also engaged in the opposite. (Colombo/Apr04/2017)

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