Sri Lanka Treasuries yields up for second week

ECONOMYNEXT – Sri Lanka’s Treasuries yield rose across maturities at Wednesday’s auction, with the three month yield rising 10 basis points to 9.27 percent, data from the state debt office showed.

The 12-month yield rose 09 basis points to 9.65 percent.

The debt office offered 2.0 billion rupees of 3-month bills, 8.0 billion rupees of 6-month bills and 10,000 billion rupees of 12-month bills.

However it accepted 15 billion rupees of six month bills, much higher than offered, and 5.0 billion rupees of 12-month bills and rejected all bids for 3-month bills.

Last Wednesday the six month yield rose 15 basis points to 9.17 percent and the 12-month yield rose 16 basis points to 9.54 percent. No 3-month bills were offered.

Treasuries yields fell sharply over the past month, though demand from some buyers fell away as yields fell below 10 percent.

Dealers say funding costs range from 9.00 to 9.25 percent at the moment.

Political uncertainty has also affected sentiment, and bond yields have also edged up, with trading volumes falling, dealers said.

There is also uncertainty over the new bond auction system, with fears that it could be used to coerce dealers and allow the central bank to engage in financial repression again.

The first bond auction also created uncertainty with auction yields around 20 basis points below the secondary market, leading to speculation that captive sources had been pressured to buy at high prices by the authorities.





Sri Lanka’s central bank in general and its public debt department in particular has a history of engaging in financial repression and de-stabilizing the credit system, according to analysts who give early warning of its tendency to generate high inflation and balance of payments crises.

But Sri Lanka is now emerging from a balance of payments triggered by money printing and financial repression in 2015 and 2016 and budgets are improving.

However there can be temporary mis-matches between spending and revenues. In June private credit also picked up after being subdued for two months. State energy enterprises are also facing tigher finances in the face of thermal generation and higher import prices.

Analysts say it is important to allow credit demand or other factors to be signalled through prices, to create renewed demand. (Colombo/Aug24/2017)

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