T-bill yields fall across maturities; Rs.185bn raised

The Central Bank successfully raised a mammoth Rs.185 billion through the sale of Treasury bills yesterday, marking one of the largest auctions in recent memory. 
The yields fell across all three maturities, underscoring the ongoing trend of easing in government securities yields throughout the year. 
This shift follows the Central Bank’s adoption of a somewhat aggressive monetary easing stance.
The Central Bank sold Rs.87.59 billion in three-month bills, after offering Rs.55 billion, at an average yield of 14.67 percent, down 19 basis points from last week’s auction. 
It further raised Rs.92.19 billion in six-month bills, much higher than the Rs.60 billion offered at the auction, at 14.38 percent, down by 14 basis points from last week. 
Despite offering Rs.70 billion, the Central Bank raised the least amount of Rs.5.22 billion under the benchmark one-year bills, at 12.88 percent yield, which declined by only one basis point.  
The second phase of the auction will be kept open till 4:00 p.m. today (December 7), for one-year bills at the 12.88 percent yield, to accept 25 percent of the aggregate amount offered at the auction. 

The mega auction came just three weeks after Central Bank Governor Dr. Nandalal Weerasinghe said the government would be needing less money from the markets after the successful implementation of the domestic debt optimisation programme and the moneys it would get from multilateral agencies for budget support. 
“We have completed the domestic debt restructuring. With that, the amount of Treasury bill and bond issuances should come down,” he said. 
Further, the higher government revenue, following multiple hikes in tax rates, also helps the government to rely less on the market to bridge its budget deficit, easing the pressure on domestic interest rates.  

These three things and the clearance of any uncertainties around foreign debt restructuring would further assist the yields to accelerate its decline towards the policy rates. 
The Central Bank in November slashed the policy rates by 100 basis points, taking them to a range of 9.00 and 10.0 percent to provide further support to the economy, which is said to have exited the recession in the second quarter. 
Despite the economy returning to a modest growth in the third and fourth quarters, as expected by the Central Bank, it is still expected to decline for the year, due to the sharp contraction in the first half. 

In another noteworthy development, the decrease in yields across the three maturities of the bills has led to a narrowing gap between them. 
Notably, the yields have experienced a more pronounced decline in the shorter tenures compared to the longer tenure bills, such as one-year bills.
Should the trend continue through the next weekly auctions, the long-term bill yields would surpass the short-term bill yields, correcting the inversion in the short-term yield curve. 
When short-term yields surpass long-term yields, it fosters a mindset of short-term thinking among investors.
This is because there is a perception that realising profits today holds greater value than future gains, primarily driven by widespread uncertainty about the economic future.