• Yields reverse gradual upward correction of recent weeks
• PDMO accepts entire stock on offer for 5th consecutive auction

Treasury bill (T-bill) yields eased across all three maturities at last week’s auction, reversing the gradual upward correction of recent weeks as the Public Debt Management Office (PDMO) accepted the entire stock on offer for the fifth consecutive auction amidst improved market liquidity.

Data published by the PDMO revealed that bids totalling Rs. 333.9 billion had been received at the auction held on Wednesday (15) against Rs. 120 billion on offer, with the PDMO accepting the full Rs. 120 billion.

The volume of bids received marked a substantial increase over the Rs. 229.8 billion received at the previous auction, reflecting a strengthening appetite for Government securities amid improved liquidity in the market.

The yield movement was modest but broad-based to the downside. The three-month T-bill eased by 8 basis points to a Weighted Average Yield Rate (WAYR) of 10.13%, the six-month by 3 basis points to 10.27%, and the 12-month by 1 basis point to 10.2%.

The decline in yields, coming after last week’s near-flat outcome and the upward correction that had preceded it, suggests that the volatility which had gripped the market since the Central Bank of Sri Lanka’s (CBSL) 100-basis-point policy rate hike in May has now largely dissipated, with the market appearing to have settled.

According to the Daily Economic Indicators published by the CBSL, overnight market liquidity stood at Rs. 152.35 billion as of 14 July, up from Rs. 134.77 billion on 7 July, marking a continued recovery from the acute liquidity shortage that had prevailed through much of June, when the figure had fallen to as low as Rs. 40.1 billion.

At last week’s auction, bids worth Rs. 55 billion were accepted out of Rs. 155.56 billion received for three-month bills against Rs. 55 billion on offer at a WAYR of 10.13%, down 8 basis points from the previous auction.

Similarly, Rs. 35 billion was accepted out of Rs. 109.6 billion in bids for six-month bills against Rs. 35 billion on offer at a WAYR of 10.27%, down 3 basis points from the previous auction.

Meanwhile, Rs. 30 billion was accepted out of Rs. 68.76 billion in bids for 12-month bills against Rs. 30 billion on offer at a WAYR of 10.2%, down 1 basis point from the previous auction.