T-bill yields continue to ease as sentiments, liquidity improve

The Treasury bill yields continued to ease, extending their months-long descent, reflecting that the government securities yields, which rose to extreme high levels, had more room to run their downward course before a pivot in the monetary policy.  

The Treasury bill yields gave up 24 basis points, 33 basis points and one basis point for three-month, six-month and 12-month bills, respectively, at the auction held yesterday, ahead of the third monetary policy meeting scheduled for next Tuesday. The yields settled at 25.99 percent, 25.79 percent and 24.31 percent, under the three tenures. 

The three tenures have given up a cumulative 665 basis points, 641 basis points and 496 basis points, respectively, since the current stretch of declines started in mid-December. 

Analysts are divided over what the rate setting committee at the Central Bank would do at their first policy meeting after the International Monetary Fund approved the US $ 2.9 billion lifeline for Sri Lanka last week. The Monetary Board could change course and deliver a rate cut next week, as it is under pressure to support a rebound in the economy, which suffered enormous challenges in the last two years.  The economy shrank by a record 7.8 percent in 2022. The phase I of the auction, which offered Rs.120 billion, didn’t get fully subscribed, as the Central Bank sold only Rs.86.7 billion.  Under the phase II of the auction, the Central Bank is issuing the difference of the accepted versus amount offered plus 25 percent of the aggregate amount offered at the auction. 

Sri Lankan economy is seen turning a corner with inflation, government securities yields and market interest rates falling in lockstep, making economic conditions somewhat eased for people and businesses.