ECONOMYNEXT – Sri Lanka’s Treasuries yields rose across maturities at Wednesday’s auction, with the 12-month yield up 38 basis points, in the first auction without price controls since March 2020, as the country sought to emerge from a currency crisis.
The 3-month yield rose 30 basis points to 6.38 percent, with 19.8 billion rupees of bills sold after offering 10 billion.
The 6-month yield rose 32 basis points to 6.27 percent, with only 58 million rupees of bills sold after offering 13 billion rupees.
The 12-month yield rose 38 basis points to 6.50 percent, with 230 million rupees of bills sold after offering 16.5 billion rupees.
The debt office sold only 20.1 billion rupees of bills or 48 percent of the 39.5 billion rupee offer.
However rates are now catching up with inflation which was 6.7 percent during the past 12 months.
The 3 month rate is now 38 basis points above the overnight rate at which liquidity is injected.
There is a large 205 billion rupee liquidity short filled at 6.0 percent with printed money, partly due to a statutory reserve ratio hike and partly due to dollar outflows, which is making it less easy for banks to invest in bonds.
The money printed to buy the unsold bills will go into the overnight sterilized liquidity short.
In January 2020 when the external sector was broadly in balance despite a tax cut in December 12-month yields were around 8.5 percent.
In the bond market a 01.12.2024 bond was quoted at 8.25/45 percent after the auction.
A 01.02.2026 bond was quoted at 9.00/9.50 percent.
Sri Lanka printed large volumes of from around February 2020, keeping rates down and putting pressure on the rupee. When money is printed to buy Treasury bills and cripple the auction process the yield curve flattens and rates remain rock solid in what analysts calls the ramrod rate anomaly.