Weeks-long descent in Treasury bill yields comes to a halt

• CB offered Rs.120bn but accepted only Rs.46bn at T-bill auction held yesterday 

The weeks-long descent in Treasury bill yields came to a halt yesterday, except for the 12-month bills, as the Central Bank rejected bids, which had come at above the offered yields at the auction, after it sold 2025 and 2027 bonds at substantially higher yields earlier in the week. 

The Central Bank offered Rs.120 billion at the weekly bill auction yesterday but accepted only above a third or Rs.45.6 billion, in a sharp departure from the full acceptances seen for many weeks, which also pushed the yields down gradually. The Central Bank sold Rs.30.2 billion via three-month bills, at 29.91 percent and Rs.5.1 billion under six-months bills, at 28.72 percent, the levels where they settled a week ago, after the country inched closer to unlocking its bailout package agreed with the International Monetary Fund (IMF) following both India and China indicated their willingness to provide debt assurances to restructure debt. 

The benchmark 12-month bill shed six basis points to settle at 27.72 percent. 
The yields of the three tenures gave up sharply last week, with each falling 17 basis points, 35 basis points and 47 basis points, respectively. 

 This extended the cumulative decline in the yields to 289 basis points, 354 basis points and 154 basis points, respectively from December 14, when the current descent in yields began. 

Some analysts attributed the stall in the yield decline this week to the bond auction held on Monday, where the Central Bank sold both 2025 and 2027 bonds at substantially higher yields than what they offered. 

The Central Bank offered Rs.15 billion under a bond maturing on July 01, 2025, at a coupon rate of 18.00 percent but ended up accepting Rs.12.9 billion, at 32.9 percent. 

It further sold Rs.55 billion under the May 01, 2023 bond, at 29.21 percent, after offering at 18.00 percent coupon. 
According to some, this may be due to the need for raising more funds via short tenure bonds, as the size of the bill auctions was getting larger as of late.

The Central Bank last week said it expected a further decline in government securities yields, due to the narrowing risk premia the investors had priced in, due to their jitters over possible restructuring of domestic debt and potential delay in receiving the executive board approval for the IMF deal.

However, Central Bank Governor Dr. Nandalal Weerasinghe expressed confidence over receiving debt assurances from all the creditors within the next four weeks or at least within the first quarter, paving the way to unlock the IMF bailout package.