T-bill yields ease after CB vowed to intervene to stabilise rates

The Treasury bill yields fell across all tenures yesterday after the Central Bank last week made clear that the yields had “overshot” and thus would intervene in the markets to stabilise them before expecting some easing.
In a sign that the bond traders are falling in line with the communication that came from the Central Bank, the three-month bill rate fell by 42 basis points to 23.65 percent, six-month rate by 47 basis points to 24.22 percent and the benchmark one-year yield by 20 basis points to settle at 24.30 percent. 

In another important development, the auction also saw the Central Bank accepting bids for the entire Rs.90 billion offered, after it rejected the bulk of the bids at last week’s auction, as many bids came in at substantially higher levels than the levels desired by the Central Bank.

Central Bank Governor Dr. Nandalal Weerasinghe last week said that the bill yields had climbed twice the rate of the increase in the policy rates, which he deemed as excessive. 

For instance, while the policy rates are up 9.0 percent since August last year, when the Central Bank turned hawkish for the first time, the one-year bill yields 
climbed 19.25 percent. 

Although the usual tilt towards the three-month bills were seen, under which the Central Bank accepted Rs.60.1 billion after offering Rs.45 billion, a visible increase was seen in the number of bids accepted under the benchmark one-year bills, as the Central Bank accepted Rs.25.6 billion after offering Rs.22.5 billion. 

Under six-month bills, the Central Bank accepted only Rs.4.4 billion, although Rs.22.5 billion was offered.