CBSL holds T-bill yields steady

• Central Bank keeps yields unchanged for over 6 weeks despite higher bid rates
• Wednesday’s auction attracts Rs. 108.6 b in bids for Rs. 70 b on offer

The Central Bank of Sri Lanka (CBSL) continued to steadfastly maintain yields at their current levels during last week’s mid-week auction, despite low demand for Treasury bills (T-bills).

Over the past 6–8 weeks, the CBSL has steadfastly maintained T-bill yields at their current levels, even though most bids at the mid-week auctions have been on the higher side. 

Market sources suggest that the CBSL believes there is no justified reason to allow yields to rise, especially given the improving economic indicators.

Additionally, the improved liquidity figures in the market do not provide a fundamental justification for a higher-end rerating of yields of T-bills.

However, the continued lack of demand for Government securities, despite improved liquidity figures, has raised suspicions that this excess liquidity may be concentrated in a few State and foreign banks, while larger local banks are facing liquidity shortages due to the high levels of credit they have extended.

The T-bill auction on Wednesday (22) saw the CBSL receive Rs. 108.6 billion worth of bids for the Rs. 70 billion-worth T-bills on offer.

At the auction, Rs. 4.5 billion of three-month bills had been sold at a Weighted Average Yield Rate (WAYR) of 7.52%, identical to the past two auctions.

Similarly, Rs. 30.8 billion from the received bids of Rs. 73.6 billion for the six-month bills had been accepted by the CBSL at a WAYR of 7.89%, identical to the past eight auctions.

Furthermore, Rs. 4.4 billion of 12-month bills had been sold at a WAYR of 8.02%, identical to the past six auctions.

Source: The morning