Treasury bill (T-bill) yields continued to fall sharply at last week’s auction amidst improved liquidity, with the three-month yield declining by 33 basis points to 9.44%, the six-month yield falling by 21 basis points to 9.78%, and the 12-month yield easing by 18 basis points to 10.01%.

The Public Debt Management Office (PDMO) offered Rs. 140 billion and accepted the full amount, with the auction recording an oversubscription of 2.76 times. The broad-based decline brings the three-month and six-month yields further below the 10% level, while the 12-month yield remains marginally above 10%.

Data published by the PDMO revealed that bids totalling Rs. 386 billion had been received at the auction held on Wednesday (12) against Rs. 140 billion on offer, with the PDMO accepting the full Rs. 140 billion. 

The volume of bids marked an increase over the Rs. 337.4 billion received at the previous auction, reflecting the strongest demand seen in recent weeks.

The decline marked a fifth consecutive week of easing, extending the downward drift that has taken hold since the market began settling following the volatility that had gripped it since the Central Bank of Sri Lanka’s (CBSL) 100-basis-point policy rate hike in May.

The continued easing came even as inflation remained elevated. According to the Daily Economic Indicators published by the CBSL, the Year-over-Year (YoY) change in the Colombo Consumer Price Index (CCPI) stood at 7.3% in July.

Overnight market liquidity stood at Rs. 194.03 billion as of Tuesday (11), up substantially from Rs. 159.31 billion a week earlier on 3 August, and remained well above the levels seen through much of June, when the market experienced an acute liquidity shortage that saw the figure fall to as low as Rs. 40.1 billion.

During last week’s auction, bids worth Rs. 177.2 billion were received for three-month bills against Rs. 55 billion on offer, with the full Rs. 55 billion accepted at a Weighted Average Yield Rate (WAYR) of 9.44%, down 33 basis points from the previous auction.

Similarly, Rs. 119.6 billion in bids was received for six-month bills against Rs. 50 billion on offer, with the full Rs. 50 billion accepted at a WAYR of 9.78%, down 21 basis points from the previous auction.

Meanwhile, Rs. 89.2 billion in bids was received for 12-month bills against Rs. 35 billion on offer, with the full Rs. 35 billion accepted at a WAYR of 10.01%, down 18 basis points from the previous auction.

Notably, unlike in preceding auctions, where the PDMO had skewed its acceptances towards the shorter maturities, last week it accepted exactly the amount offered under each of the three maturities.