T-bill yields remain broadly steady

• Marks a pause after six consecutive weeks of declines
• Driven by extraordinary liquidity conditions
• Overall acceptance at auction below 40%

Treasury bill (T-bill) yields remained broadly steady at the mid-week auction last week, marking a pause after six consecutive weeks of declines driven by extraordinary liquidity conditions. 

However, overall acceptance at the auction fell below 40%, reflecting cautious market sentiment.

Speaking to The Sunday Morning Business, First Capital Holdings Chief Research and Strategy Officer Dimantha Mathew stated that the halt in the downward trend of T-bill yields was likely due to the market view that yields had bottomed out.

Commenting on the low acceptance rate, he noted that investors were adopting a wait-and-see approach amid the ongoing conflict in the Middle East.

“This is a new scenario. We are watching the situation, and things could change,” he said.

The subdued acceptance at the mid-week auction suggests that a significant portion of bids were submitted at levels above the cutoff levels. 

While this may partly reflect concerns stemming from geopolitical tensions, it is noteworthy that the Public Debt Management Office (PDMO) was also unable to fully subscribe to the total stock of Treasury bills offered at the previous week’s auction, indicating a mismatch between the Government’s target yields and prevailing market expectations.

The six-week decline in yields was largely driven by exceptionally high liquidity in the banking system, amid a slowdown in private-sector credit growth and substantial purchases of US Dollars by the Central Bank of Sri Lanka (CBSL).

According to CBSL data, market liquidity stood at Rs. 332.5 billion as at 3 March, up from Rs. 282.4 billion recorded on 18 February. This represents a significant increase compared to Rs. 124 billion on 20 December 2025 and Rs. 66 billion on 19 December 2025.

Official statistics further show that the CBSL purchased $ 272.5 million and sold $ 18.8 million in December 2025, while in January this year it purchased $ 209.8 million and sold $ 9.5 million. 

In contrast, in January 2025 the CBSL purchased only $ 47.3 million and sold $ 29 million, underscoring the scale of recent foreign exchange interventions that have contributed to elevated liquidity levels.

According to data published by the PDMO, bids totalling Rs. 179.7 billion were received at the Treasury bill auction held on Wednesday (4). However, only Rs. 47.8 billion was accepted out of the Rs. 90 billion on offer, reflecting an acceptance rate of 39.8%.

Accordingly, at the auction, Rs. 20.7 billion from the received bids of Rs. 38.8 billion for the three-month bills were accepted by the PDMO at a Weighted Average Yield Rate (WAYR) of 7.63%, consistent with the levels at the previous auction.

Similarly, Rs. 19.3 billion from the received bids of Rs. 101.2 billion for the six-month bills were accepted by the PDMO at a WAYR of 7.92%, consistent with levels at the previous auction.

Furthermore, Rs. 7.8 billion from the received bids of Rs. 39.7 billion for the 12-month bills were accepted by the PDMO at a WAYR of 8.23%, down 1 basis point from the previous auction.

Source: The morning