Sri Lanka sells Rs55bn in bonds below secondary yields

ECONOMYNEXT – Sri Lanka sold 55.58 billion rupees of 4, 7 and 10-year bonds after calling offers for 57 billion rupees, at yields below the secondary market prices earlier in the day, auction data show.

The debt office, which is a unit of the Central Bank sold 18.58 billion rupees of 4-year bonds maturing on 01 March 2021 to yield an average of 11.94 percent.

The same 4-year bonds were quoted at 11.95/05 percent before the auction dealers said.

18.6 billion rupees of 7-year bonds maturing on 01 August 2024 were sold to yield an average of 11.98 percent.

The exact maturity was quoted around 12.20/40 percent before the auction.

18.4 billion rupees of 10-year bonds maturing on 01 August 2026 were sold to yield an average of 12.11 percent.

10-year bonds were quoted around 12.30/45 percent before the auction.

It is not clear who bid at rates below secondary market at the auction. Whether state-controlled (captive source) bid at lower yields or real investors bid low expecting yields to drop is not known. In January some sales proceeds of Hambantota Harbhour is expected. Revenues will also be up, with no salary hikes.

After the auction secondary yields did not drop, but dealers say due to late auction results, there was no active trading.

If secondary rates drop exiting foreign investors who could only sell a 7-year bonds at 98.62 rupees (12.20-pct) would be able to sell at 99.56 rupees (12.00 percent) tomorrow.

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A foreign investors who sold a 2026 bond today at 100.22 rupees (12.30 percent) would be able to sell at 101.31 (12.10 percent) tomorrow, if rates fall. A similar profit would be found if the rupee appreciated by one rupee.

Sri Lanka’s central bank printed money for 70 days or more through outright purchases of Treasuries, from November loosening policy, pushing longer yields also down rates down, (Sri Lanka loosens policy; signals longer term rates) giving larger profits to exiting foreign investors than if credit markets operated freely, critics say.

Over the last three years, money markets show excess liquidity which is usually the result of dollar inflows or a central bank profit transfer. (Colombo/Dec28/2016)

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