• 3-month rate rises above 9% after 8-week slide

Treasury bill (T-bill) yields showed signs of a reversal at last week’s auction, with the three-month rate climbing back above 9% after eight consecutive weeks of decline, amid a marked dip in investor demand.

Data published by the Public Debt Management Office (PDMO) revealed that bids totalling Rs. 149.2 billion had been received at Wednesday’s (9) auction against Rs. 80 billion on offer. The PDMO accepted the full Rs. 80 billion, leaving the auction oversubscribed by around 1.87 times.

The volume of bids marked a sharp decline from the levels recorded at recent T-bill auctions.

The three-month T-bill rose by 7 basis points to a Weighted Average Yield Rate (WAYR) of 9.03%, moving back above the 9% mark, while the six-month eased by 3 basis points to 9.24% and the 12-month by 4 basis points to 9.77%.

Speaking to The Sunday Morning Business, First Capital Chief Research and Strategy Officer Dimantha Mathew said that the drop in bids at last week’s T-bill auction may have been due to the upcoming Treasury bond (T-bond) auction on Friday (11).

“There has been a bit of profit-taking and rates have moved up in the mid- to long-term tenors in the secondary market. There seems to be some interest in the tenors that have moved back up,” he said.

Mathew said that investors were holding back in order to invest in T-bonds, as there was a possibility of rate cuts in the first half of next year considering the sharp rate hikes seen this year. 

He added that investors appeared to be looking to capitalise on this opportunity by entering into T-bonds at the current rates.

According to the Daily Economic Indicators published by the Central Bank of Sri Lanka (CBSL), overnight market liquidity stood at Rs. 119.8 billion as of 8 September, up from Rs. 93.64 billion the previous day and broadly in line with the Rs. 122.05 billion recorded a week earlier on 2 September.

At last week’s auction, bids worth Rs. 42.52 billion were received for three-month bills against Rs. 35 billion on offer, with Rs. 17.48 billion accepted at a WAYR of 9.03%, up 7 basis points from the previous auction.

Similarly, Rs. 55.85 billion in bids was received for six-month bills against Rs. 25 billion on offer, with Rs. 28.64 billion accepted at a WAYR of 9.24%, down 3 basis points from the previous auction.

Meanwhile, Rs. 50.84 billion in bids was received for 12-month bills against Rs. 20 billion on offer, with Rs. 33.89 billion accepted at a WAYR of 9.77%, down 4 basis points from the previous auction.

While the total amount accepted matched the Rs. 80 billion on offer, the PDMO accepted only Rs. 17.48 billion of the three-month bills, well below the Rs. 35 billion offered, while accepting above the offered amounts for the six-month and 12-month bills, in an apparent move to resist the upward pressure on the three-month rate.