Improved liquidity and positive market sentiment driven by ceasefire developments in the Middle East led to a decline in the yield of the three-month Treasury bill (T-bill) at last week’s mid-week auction, following an increase of over 66 basis points during the preceding five weeks.
The de-escalation of hostilities and increasing likelihood of a sustained ceasefire in the Middle East have had a marked positive impact on market sentiment, prompting market participants to reassess downward the risk premium imposed on Government securities.
At the same time, a sharp increase in market liquidity in the seven-day period leading up to the auction resulted in demand exceeding the T-bills on offer by over 217%.
Consequently, the yield on the three-month T-bill declined by 7 basis points, while the mid- to longer-term tenors showed little to no movement.
This shift in yield direction stands in stark contrast to the trend observed over the preceding five-week period, during which the three-month Treasury bill yield increased by 66 basis points, the six-month by 32 basis points, and the 12-month by 29 basis points.
According to statistics published by the Central Bank of Sri Lanka (CBSL), market liquidity improved to Rs. 231.9 billion by Tuesday (28 April), up from Rs. 151 billion on 22 April.
Data released by the Public Debt Management Office (PDMO) further showed that bids totalling Rs. 304.7 billion were received at the T-bill auction held on Wednesday (29 April) against Rs. 140 billion on offer.
At the auction, Rs. 69.8 billion was accepted out of Rs. 160 billion in bids received for three-month bills at a Weighted Average Yield Rate (WAYR) of 8.2%, marking a decrease of 7 basis points from the previous auction.
Similarly, Rs. 25.3 billion was accepted out of Rs. 75.3 billion in bids for six-month bills at a WAYR of 8.25%, up by 2 basis points from the previous auction.
Meanwhile, Rs. 31.9 billion was accepted out of Rs. 69.5 billion in bids for 12-month bills at a WAYR of 8.52%, remaining constant when compared to the previous auction.