Yields rise across board at bill auction this week

The treasury bill yields across all three tenures rose at large margins again at the primary auction held on Monday, brought forward from Wednesday, due to the Poya holiday but the auction ended up accepting its entire issued amount, albeit skewed towards the shorter end of the tenure, making it the first such successful auction held since many months. 

Despite the expectations by certain quarters that the yields could level off in the next couple of weeks, after the Central Bank held its key policy rates last week, the yields jumped by between sharp 35 to 96 basis points across the three tenures,with the six-month and one-year bill rates climbing the most this week, after the Central Bank’s Public Debt Department rejected all bids under the two tenures last week.

The Central Bank offered Rs.20 billion under three-month bills on Monday but accepted Rs.74.25 billion out of Rs.158.53 billion bids received at 8.39 percent, up 35 basis points from last week. With this week’s rise, the three-month bill has added 231 basis points since the reference yields were lifted in the middle of September. 

This made the PDD accepting almost entirely the amount it offered under the three tenures for the week i.e. Rs.74.5 billion under the shortest tenure, typical of its acceptance pattern in the last couple of weeks, which largely tilted towards the shortest tenure. 

The Central Bank offered Rs.22 billion under the six-month tenure but accepted only Rs.200 million from the bids received worth of Rs.23.8 billion, at a yield of 8.16 percent, up by a sharp 96 basis points from a fortnight ago and 221 basis points since the yield caps were removed. 

Meanwhile, from the Rs.32.5 billion offered under the benchmark one-year bill, the Central Bank accepted only Rs.50 million out of Rs.32.85 billion worth of bids received at a yield of 8.17 percent, up by 89 basis points from two weeks ago and 205 basis points since the yield caps were taken out in the middle of September.  According to some economic analysts, the sharp and continuous increases logged in weekly bill yields are a telltale that the rest of the market lending and deposit rates also to follow suit, albeit at a lesser intensity and the Central Bank could be forced to deliver another rate hike before the end of the year.