T-bill yields fall for 4th consecutive week

• Decline driven by exceptionally high market liquidity 
• Decreasing private sector credit, CBSL dollar purchases cited as reasons
• Longer-term tenor yields to also adjust downward 

Treasury bill (T-bill) yields declined sharply across all maturities for the fourth consecutive week, driven by exceptionally high liquidity in the market. Market sources anticipate that yields on longer-term tenors will also adjust downward in due course. 

Speaking to The Sunday Morning Business, First Capital Holding Chief Research and Strategy Officer Dimantha Mathew noted that the extremely elevated liquidity levels in the market were the principal factor behind the fall in yields. 

He stated that as long as liquidity remained at these high levels, yields were likely to continue declining across all maturities.

According to data released by the Central Bank of Sri Lanka (CBSL), market liquidity stood at Rs. 296.5 billion as of 11 February, a significant increase from Rs. 124 billion recorded on 20 December 2025 and Rs. 66 billion on 19 December 2025.

Commenting on the drivers of the substantial increase in liquidity, Mathew said: “Private-sector credit is decreasing and the CBSL is purchasing significant amounts of US Dollars. According to the latest available data, it purchased $ 200 million.”

Forecasting yield movements in longer-term tenors, he stated that they expected yields to adjust downward by approximately 20–30 basis points, following the decline already seen in shorter and mid-term tenors.

He further observed that a further significant drop in the shorter-term T-bill yields was unlikely, as yields had now returned to levels seen prior to the surge earlier this year, when liquidity was low at the turn of the year. 

Mathew pointed out that T-bill yields were now close to the policy rate, leaving limited room for further downward movement.

According to the data published by the Public Debt Management Office (PDMO), it had received bids totalling Rs. 284 billion for the Rs. 90 billion T-bills on offer at the T-bill auction on Wednesday (11). 

Accordingly, at the auction, Rs. 20 billion from the received bids of Rs. 53.6 billion for the three-month bills were accepted by the PDMO at a Weighted Average Yield Rate (WAYR) of 7.72%, down 8 basis points from the previous auction.

Similarly, Rs. 50 billion from the received bids of Rs. 185.5 billion for the six-month bills were accepted by the PDMO at a WAYR of 8.07%, down 10 basis points from the previous auction.

Furthermore, Rs. 20 billion from the received bids of Rs. 45 billion for the 12-month bills were accepted by the PDMO at a WAYR of 8.31%, down 2 basis points from the previous auction. 

Source: The morning