• Investors bid higher as private banks face tight liquidity conditions
• CBSL maintains Rs. 1 b cash buffer
• T-bill yields remain steady with 12-month bills at 8.04%
• Analysts expect stable yields until mid-2026, followed by upward pressure

The Central Bank of Sri Lanka (CBSL) has accepted bids amounting to only 56% of the Treasury bills (T-Bills) on offer at the mid-week auction held during the preceding week, as bids came in at the higher end due to a liquidity crunch among private banks.

Speaking to The Sunday Morning Business, First Capital Manager Research Ranjan Ranatunga pointed out that at last week’s T-bill auction, the CBSL, in keeping with its recent trend, had only partially accepted the bids received. 

He explained that the primary reason for this continued low level of acceptance was that the CBSL was unwilling to accept bids at higher rates, while investors continued to quote slightly above the desired levels.

Ranatunga further revealed that the CBSL was able to maintain this position as it currently held a cash buffer of around Rs. 1 billion, giving it the flexibility to reject bids that were considered to be on the high side.

Elaborating on the reasons for investors to bid higher, he stated: “This is partially caused by the excess credit demand we are seeing in the system because of the vehicle demand. Therefore, there is a bit of a liquidity crunch happening among banks. Private banks are short of liquidity and we are seeing State banks with excess liquidity. As a result, the market is bidding slightly higher,” he stated.

He stated that the market was aware of the prevailing credit crunch among private banks, resulting in investors submitting bids at the higher end.

Commenting further on the future outlook, Ranatunga stated that T-bill yields were expected to remain at current levels until around June 2026, after which some upward pressure was likely to emerge, pushing yields higher.

The T-bill auction on Wednesday (12) saw the CBSL receive Rs. 110.5 billion worth of bids for the Rs. 77 billion worth of T-bills on offer.

At the auction, Rs. 3.5 billion of three-month bills had been sold at a Weighted Average Yield Rate (WAYR) of 7.52%, identical to the previous auction.

Similarly, Rs. 36 billion from the received bids of Rs. 59 billion for the six-month bills had been accepted by the CBSL at a WAYR of 7.91%, up one basis point compared to the previous week’s auction. 

Furthermore, Rs. 3.8 billion of 12-month bills had been sold at a WAYR of 8.04%, identical to the previous auction.