T-bill yields ease for fourth consecutive week

The Treasury bill yields continued their descent yesterday for the fourth consecutive week, instilling hopes that the trend in the bond markets could be replicated in the lending markets, as seen from the initial signs from the easing in the prime lending rates last week.

Sri Lanka’s bill yields fell off a cliff four weeks ago after the Central Bank rejected most bids and told the markets that they would intervene to correct, in what they saw as an overshooting in the yields. 

Since then, the bill yields, which jumped in the three weeks following the jumbo rate hike on April 8, were seen reversing their direction, potentially cooling down even the lending rates.

At yesterday’s auction, the three-month bill yields declined 118 basis points to 20.73 percent, the most since the easing in yields began. This brought the cumulative decline in the yields to 334 basis points in the four weeks. 
The six-month bill yield shed 99 basis points to 21.90 percent yesterday, taking the cumulative drop to 279 basis points. 

The benchmark one-year bill yields fell 109 basis points to 22.04 percent, the most since the easing trend set off, bringing the cumulative decline to 246 basis points. 

In line with the last few weeks, the Central Bank accepted all the bids offered to raise Rs.98.0 billion. 
The Central Bank offered Rs.45.0 billion in 30-month bills, Rs.25.0 billion in six-month bills and Rs.28.0 billion in one-year bills and accepted Rs.67.1 billion, Rs.15.5 billion and Rs.15.4 billion each under the three tenures.

In a departure from months-long practice of favouring shorter tenure bills, the Central Bank in recent weeks increased the acceptance from the relatively longer tenure bills, although yesterday’s auction was seen as an outlier compared to the recent few auctions. 

The full subscriptions of bill auctions indicate that the government continues to be successful in plugging its fund shortfall in the budget via private savings as opposed to money printed by the Central Bank, which is inflationary.

While the government restored its pre-2020 tax policy recently, the revenue that it could rake in appeared vastly limited, due to the weak economy, as most activities are either hamstrung or move slowly than their full potential, due to the acute shortage of foreign currency, which has created persistent and painful shortages in energy and other commodities.