• Follows upward trend in secondary market over past 2 weeks
• Movement already reflected in secondary market
• Yields rise by approx. 25–30 basis points  

Treasury bill (T-bill) yields rose across all tenors for the first time in over two months at the latest auction following an upward trend observed in the secondary market over the past two weeks amid growing market concerns over Sri Lanka’s economic outlook. 

Speaking to The Sunday Morning Business, First Capital Manager – Research Ranjan Ranatunga noted that although last week’s T-bill auction saw a sharp increase in yields across all tenors, this movement had already been reflected in the secondary market, where yields had risen by approximately 25–30 basis points over the preceding two weeks.

He explained that the recent movements in both the primary and secondary T-bill markets were 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 pricing 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,” he stated.

He further noted that bids at the T-bill auction were now being submitted at higher rates, leading the Government to reject them, resulting in relatively low acceptance levels at the auction.

According to him, if the Public Debt Management Office (PDMO) were to accept the full auction, yields would need to increase by approximately 13–15 basis points. However, as the PDMO appears unwilling to accommodate such increases, only a portion of the bids has been accepted.

Data published by the PDMO showed that bids totalling Rs. 99.6 billion were received at the T-bill auction held on Wednesday (25). However, only Rs. 34.9 billion was accepted out of the Rs. 80 billion on offer, reflecting an acceptance rate of approximately 43.6%.

At the auction, Rs. 14.9 billion was accepted out of Rs. 31.7 billion in bids received for the three-month bills at a Weighted Average Yield Rate (WAYR) of 7.64%, marking an increase of 3 basis points from the previous auction.

Similarly, Rs. 7.4 billion was accepted out of Rs. 28.9 billion in bids received for the six-month bills at a WAYR of 7.95%, up by 4 basis points.

Meanwhile, Rs. 12.7 billion was accepted out of Rs. 38.9 billion in bids received for the 12-month bills at a WAYR of 8.32%, reflecting an increase of 9 basis points from the previous auction.