• Investors demand higher risk premiums on Govt. securities
• PDMO fails to fully subscribe total stock of T-bills on offer
• Rs. 136 b of bids received at 15 April auction

Treasury bill (T-bill) yields rose for the fourth consecutive week at last week’s mid-week auction, as ongoing external market disruptions saw investors demand higher risk premiums on Government securities.

Yields increased sharply at the auction, with the three-month T-bill in particular rising by over 20 basis points. 

This uptick in yields reflected negative market sentiment following the failure of ceasefire efforts between the US and Iran, reinforcing expectations of the conflict to continue in the near term, continued disruptions to shipping through the Strait of Hormuz, and potential spillover effects on global energy markets and economic activity.

Despite the Public Debt Management Office (PDMO) showing willingness to raise cut-off rates, it once again failed to fully subscribe the total stock of T-bills on offer. Market participants attributed this to a mismatch between issuer expectations and investor demand for higher yields amid elevated risk conditions.

Since the onset of hostilities in the Middle East – fuelling volatility in energy markets and concerns over a potential global economic slowdown – primary market yields have adjusted upwards, with the three-month T-bill rising by 54 basis points, the six-month by 31 basis points, and the 12-month by 29 basis points.

However, subdued market liquidity during the Sinhala and Tamil New Year period, as market participants temporarily step away, may have also contributed to the upward pressure on yields at the latest auction.

According to data released by the PDMO, bids totalling Rs. 136 billion were received at the T-bill auction held on Wednesday (15). Of this, only Rs. 58.5 billion was accepted out of the Rs. 90 billion on offer, reflecting an acceptance rate of approximately 65%.

Rs. 32.1 billion was accepted at the auction out of Rs. 56.5 billion in bids received for three-month bills at a Weighted Average Yield Rate (WAYR) of 8.15%, marking an increase of 20 basis points from the previous auction.

Similarly, Rs. 17 billion was accepted out of Rs. 42.2 billion in bids for six-month bills at a WAYR of 8.22%, up by 8 basis points.

Meanwhile, Rs. 9.5 billion was accepted out of Rs. 37.3 billion in bids for 12-month bills at a WAYR of 8.52%, reflecting an increase of 7 basis points from the previous auction.