• Surge in market liquidity to Rs. 130 b reduces pressure to accept higher yields
• Rs. 158 b in bids received against Rs. 82 b offered, but CBSL sells only part
• 3-month T-bill yield eases to 7.58%, 6-month at 7.89%, 1-year steady at 8.03%
• Analysts expect yields to soften further if 25-bp policy rate cut is delivered

The Central Bank of Sri Lanka’s (CBSL) refusal to accept higher bids at last week’s Treasury bill (T-bill) auction amidst the recent surge in liquidity saw the bank fail to sell the entire stock of T-bills offered at the auction.

Speaking to The Sunday Morning Business, First Capital Holdings Chief Research and Strategy Officer Dimantha Mathew stated that leading up to the T-bill auction last week, the liquidity in the market had surged to around Rs. 130 billion. 

He pointed out that around a month ago, liquidity had been struggling at below the Rs. 100 billion levels. 

“With the economy ticking upwards, we have been expecting the liquidity to return to the market,” he stated.

Accordingly, he claimed that with the liquidity surging upwards, the CBSL had no rational justification to accept bids above their cut-off mark or allow the yields to move up.

Stating that while he was unaware of the exact reason as to why bids had come in on the higher side this week, he speculated that it was possibly due to recent volatility in liquidity.

According to the CBSL, it had received bids worth Rs. 158 billion for the Rs. 82 billion worth T-bills offered at Wednesday’s (27) auction. 

The CBSL sold Rs. 4.6 billion of three-month T-bills at a Weighted Average Yield Rate (WAYR) of 7.58%, down one basis point from last week’s auction, Rs. 36.5 billion of six-month T-bills at a WAYR of 7.89%, and Rs. 10 billion of 12-month T-bills at a WAYR of 8.03%, unchanged from the previous week’s auction.

Mathew further noted that they expected yields of Government securities to decline in the near term, particularly if the anticipated 25-basis point policy rate cut materialised at the next Monetary Policy Review.