T-bill yields continue to give up gains for second consecutive week

The Treasury bill yields continued to ease for the second consecutive week this week, as bond investors and traders are digesting the relative calm in markets and rising hopes of a staff-level agreement with the International Monetary Fund (IMF).

The yields fell by between 29 basis points to 264 basis points across the three tenures, logging a much steeper decline than the five-basis-point to 104-basis-point decline logged in the previous week, when the current clip of declining yields began. 

Since taking office, the new President Ranil Wickremesinghe took measures to restore order, implement a system to distribute the limited stocks of fuel though with hiccups and is also to present a revised budget in a few weeks, which could carry more policies to raise revenues and rationalise expenditure.

These types of reforms could typically win over bond investors, prompting them to reassess their risk and return profiles on their investments in government securities. 

However, inflation running at near 60 percent levels is a serious concern to investors and consumers alike as the real returns remain sharply negative. 

The auction held yesterday also saw the Central Bank raising the full amount of Rs.85.0 billion offered, skewing mostly towards the three-month tenure. 

The Public Debt Department (PDD) offered Rs.37.5 billion in three-month bills but ended up accepting Rs.60.4 billion at a yield of 28.86 percent, which came down by 264 basis points from last week. 

The PDD raised Rs.10.2 billion from six-month bills, after offering Rs.25.0 billion at 29.24 percent, which came down by 73 basis points. 

The benchmark one-year bill yield was the least to come down by 29 basis points to 29.53 percent, at which rate the PDD raised Rs.14.4 billion, after offering Rs.22.5 billion. 

As usual, the Central Bank kept the six-month and one-year bills open till 3:30 p.m. to accept up to further 25 percent from the aggregate amount offered at the auction from willing investors, who could not participate in the auction.