Looking to lock-in funds at lower rates, govt. raises Rs.85bn in T-bonds

The government raised just shy of Rs.85 billion in a bond issuance on Friday in what could be the final for the year as the December 11 was the last one scheduled in the calendar for 2020 to raise long-term funds for the government. 

The Public Debt Department (PDD) of the Central Bank on Friday issued Rs.100 billion worth treasury bonds in three tenors, ranging from 3 to 11 years, as the government looks to lock-in medium to long term funds it requires at favourable rates when the interest rates have descended to the lowest levels in recent history.

Accordingly, PDD issued Rs.40.0 billion each in bonds maturing in October 2023 and March 2026 at coupon rates of 7.00 percent and at 5.35 percent respectively, and another Rs.20.0 billion in bonds maturing in January 2032 at 8.00 percent. 

Although PDD receives bids worth Rs.142.9 billion under all three tenors, it accepted only Rs.39.3 billion in 2-year and 9-month bonds at a weighted average yield of 5.99 percent, Rs.29.8 billion in 5-year and 2-month bonds at 6.79 percent and Rs.15.3 billion in 11-year bonds at 7.84 percent.    

Both the government and the Central Bank have reiterated that they have changed its debt management strategy to tilt towards domestic borrowings as cost of domestic debt is much lower in the present context and will not expose the country to foreign exchange risks. 

“…. the forward looking financing model of the government, which is skewed heavily towards domestic financing, will capitalise on the benefits of increased domestic savings and the low interest rate regime already in place given the subdued levels of inflation and well anchored inflation expectations at present,” the Ministry of Finance said in response to the S&P Global Ratings’ downgrade of Sri Lanka’s sovereign on Friday. 

“Further, any increase in the share of domestic government debt in a low interest rate regime and when the economic growth rate is expected to be above the real rate of interest, the government debt management would not be a major source of concern in the period ahead,” the statement added. 

On the week ending December 9, Sri Lanka had an outstanding debt stock of government securities worth Rs.6.9 trillion comprising Rs.5.4 trillion in treasury bonds and Rs.1.5 trillion in treasury bills. 

Foreigners sold their holdings during the week by 11.5 percent compared to the previous week.