Treasury bill (T-bill) yields plateaued at last week’s mid-week auction following the significant volatility observed in the market over the past six weeks.

Following the breakout of the conflict in the Middle East, T-bill yields surged over a five-week period as the market reassessed the risk premium on Government securities, which saw the three-month Treasury bill yield increase by 66 basis points, the six-month by 32 basis points, and the 12-month by 29 basis points. 

The five-week period was characterised by low acceptance levels at the auction despite the sharp increase in yields as the market kept pushing for higher yields amidst the volatile external situation.                                         

However, with the de-escalation of hostilities and the increasing likelihood of a sustained ceasefire in the Middle East, T-bill yields had settled by end-April.

In that backdrop, together with improved liquidity in the market, the entire stock of T-bills was on offer at last week’s auction while holding current yield levels.

According to statistics published by the Central Bank of Sri Lanka (CBSL), market liquidity improved to Rs. 246.3 billion by Tuesday (5), up from Rs. 151 billion on 22 April.

Data released by the Public Debt Management Office (PDMO) further showed that bids totalling Rs. 214.9 billion were received at the Treasury bill auction held on Wednesday against Rs. 100 billion on offer.

At the auction, Rs. 47.3 billion was accepted out of Rs. 106.9 billion in bids received for three-month bills at a Weighted Average Yield Rate (WAYR) of 8.2%, remaining constant when compared to the previous auction.

Similarly, Rs. 27.1 billion was accepted out of Rs. 50.1 billion in bids for six-month bills at a WAYR of 8.24%, down by 1 basis point from the previous auction.

Meanwhile, Rs. 25.6 billion was accepted out of Rs. 57.9 billion in bids for 12-month bills at a WAYR of 8.52%, remaining constant when compared to the previous auction.