Yields rose across all tenors for the second consecutive week at last week’s Treasury bill (T-bill) auction, as the market continued to price in a higher risk premium.

Despite sustained high liquidity in the system, hovering above Rs. 240 billion over the past two weeks, T-bill yields in the primary market have trended upwards during the same period. 

The upward movement escalated particularly during the preceding week, when yields increased by double digits in the three-month and six-month tenors, even as the Public Debt Management Office (PDMO) accepted only around 36% of the total T-bills on offer.

The relatively low acceptance rate, despite the surge in yields, indicates that a significant portion of bids were submitted at higher yield levels, and that full acceptance at the auction would have resulted in a more pronounced increase in yields.

According to market sources, the recent rise in yields is being driven by investor expectations of a potential balance of payments crisis in Sri Lanka. In anticipation of such risks, including a depreciating rupee and rising inflation, investors are demanding a higher risk premium on Government securities.

“With external shocks coming into play, there are expectations that remittances, exports, and tourism will slow down, while on the other hand, imports may increase due to the oil crisis. 

“This creates pressure on Sri Lanka’s balance of payments position. A balance of payments crisis will affect the ability of the Central Bank of Sri Lanka to purchase US Dollars,” a market source stated.

Data released by the PDMO showed that bids totalling Rs. 107.7 billion were received at the T-bill auction held on Tuesday (31 March). However, only Rs. 32.5 billion was accepted out of the Rs. 90 billion on offer, reflecting an acceptance rate of approximately 36.1%.

At the auction, Rs. 10.1 billion was accepted out of Rs. 44.7 billion in bids received for three-month bills at a Weighted Average Yield Rate (WAYR) of 7.80%, marking an increase of 16 basis points from the previous auction.

Similarly, Rs. 16.2 billion was accepted out of Rs. 39.8 billion in bids received for six-month bills at a WAYR of 8.09%, up by 14 basis points.

Meanwhile, Rs. 6.2 billion was accepted out of Rs. 23.2 billion in bids received for 12-month bills at a WAYR of 8.41%, reflecting an increase of 9 basis points from the previous auction.