• T-bill yields steady after sharp declines; expected to stagnate until debt restructuring concludes  
• First Capital sees political stability easing yields, but no further drop likely without new catalysts
• External debt restructuring final stages, credit rating upgrade to be next major factor 
• T-bill auction oversubscribed by a factor of 2.3, signalling continued investor confidence 

After falling sharply for four consecutive weeks, the yields at last week’s Treasury bill (T-bill) auction remained constant in comparison to the previous week’s auction, with market sources expecting yields to stagnate at the current levels until external debt restructuring is completed.

Speaking to The Sunday Morning Business, First Capital Holdings Manager – Research Ranjan Ranatunga pointed out that the yields of all Government securities had shot upward sharply since 30 May due to the political uncertainty in the country. 

However, with the uncertainty clearing up following the Presidential Election, T-bill yields had fallen sharply over the succeeding few weeks to around the same levels they had been in May.

Ranatunga stated that the sharp fall observed in T-bill yields over the past few weeks had merely been a market correction. 

Accordingly, he opined that there was no longer any impetus for the yields to fall further, expecting them to stagnate at the current levels until another catalyst is revealed to push them further downwards.

He stated: “External debt restructuring is almost complete. Only the final part remains, involving the signing of the Memoranda of Understanding (MOUs) and the exchange of bonds. 

“About two weeks ago, we heard from Clifford Chance that the debt restructuring process could be completed within 6-8 weeks. Once external debt restructuring is completed, we will have finished our debt restructuring and thereafter will receive a credit rating upgrade. This rating upgrade will be the second catalyst for the yields to drop.”

According to the data published by the Central Bank of Sri Lanka (CBSL), the T-bill auction on Wednesday (23) was oversubscribed by a factor of 2.3, receiving bids totalling Rs. 290.1 billion for the Rs. 125 billion T-bills on offer. 

Accordingly, at the auction, Rs. 66.4 billion from the received bids of Rs. 129.5 billion for the three-month bills had been accepted by the CBSL at a Weighted Average Yield Rate (WAYR) of 9.32%. 

Similarly, Rs. 45.7 billion from the received bids of Rs. 103.5 billion for the six-month bills had been accepted by the CBSL at a WAYR of 9.65%.

Furthermore, Rs. 12.9 billion from the received bids of Rs. 57.1 billion for the 12-month bills had been accepted by the CBSL at a WAYR of 9.95%.