• Follows sustained downward trend over past 2 months
• Liquidity at Rs. 394.5 b as at 11 March

Following last week’s Treasury bill (T-bill) auction, which saw T-bill yields remain unchanged for the first time in eight weeks, yields appear to have bottomed out after a sustained downward trend over the past two months, amid exceptionally high, albeit volatile, market liquidity.

The results of the mid-week auction showed that the Public Debt Management Office (PDMO) was unable to sell nearly 50% of the T-bills on offer. 

This outcome reflects a mismatch between the PDMO’s view that current yields are appropriate – likely supported by prevailing liquidity conditions – and market sentiment, which appears to be factoring in global uncertainty and its potential impact on the domestic economy. 

As a result, bids were submitted at higher yield levels, while the PDMO maintained cut-off rates in line with the previous week’s auction.

The sharp decline in yields observed since the beginning of 2026 has been largely driven by historically high liquidity levels, primarily due to US Dollar purchases by the Central Bank of Sri Lanka (CBSL), which have contributed to a drop of over 20 basis points in T-bill yields since January.

Despite elevated liquidity, conditions have remained highly volatile. Data from the CBSL indicates that market liquidity surged to Rs. 394.5 billion as at 11 March, before declining to Rs. 258.2 billion by 17 March, and subsequently recovering to Rs. 341.2 billion by 18 March.

Official statistics further show that the CBSL purchased $ 461 million in February without any sales, while in January, it purchased $ 209.8 million and sold $ 9.5 million, and in December 2025 it purchased $ 272.5 million and sold $ 18.8 million, underscoring the scale of recent foreign exchange interventions that have contributed to elevated liquidity levels.

According to data published by the PDMO, bids totalling Rs. 207.6 billion were received at the T-bill auction held on Wednesday (18). However, only Rs. 60.8 billion was accepted out of the Rs. 120 billion on offer, reflecting an acceptance rate of around 51%.

Accordingly, at the auction, Rs. 26.3 billion from the received bids of Rs. 84.8 billion for the three-month bills was accepted by the PDMO at a Weighted Average Yield Rate (WAYR) of 7.61%, which remained unchanged from the previous auction.

Similarly, Rs. 12.8 billion from the received bids of Rs. 81.2 billion for the six-month bills was accepted by the PDMO at a WAYR of 7.91%, which remained unchanged from the previous auction.

Furthermore, Rs. 21.7 billion from the received bids of Rs. 45.6 billion for the 12-month bills was accepted by the PDMO at a WAYR of 8.23%, which remained unchanged from the previous auction.