CBSL sells only 35% of T-bills

• CBSL maintains firm stance against yield increases despite limited demand
• Market liquidity at Rs. 150 b but unevenly distributed among banks
• CBSL retains buffer built from earlier high demand for Govt. securities
• Yields remain unchanged across all maturities at latest T-bill auction

The Central Bank of Sri Lanka (CBSL) was able to sell only 35% of the Treasury bills (T-bills) offered at the mid-week auction during the preceding week, as it continued to steadfastly maintain yields at the current levels.

Speaking to The Sunday Morning Business, First Capital Holdings Chief Research and Strategy Officer Dimantha Mathew stated that the CBSL had refused to allow the yields to move up as it appeared to be of the view that the fundamentals did not warrant an upward movement in yields, particularly considering the high liquidity in the market.

“The CBSL appears to think it can wait this out and buy at the prices it is looking at,” he stated.

He further pointed out that the liquidity in the market was around Rs. 150 billion, but that this had not been reflected in increased demand for T-bills.

Mathew expressed the view that this development was due to liquidity being disproportionately distributed among the banks. 

He noted that the majority of liquidity appeared to be concentrated in a few State and foreign banks, while the larger local banks faced liquidity shortages because of the high levels of credit they had extended.

Furthermore, he added that the CBSL could continue to maintain this strategy of holding yields steady because earlier this month, amid high demand for Government securities, it had built a buffer of nearly Rs. 1 trillion. 

While this buffer may have decreased, Mathew noted that the CBSL still had sufficient funds to reject bids at higher yield levels.

The T-bill auction on Wednesday (15) saw the CBSL receive Rs. 102.4 billion worth of bids for the Rs. 77.5 billion-worth T-bills on offer.

At the auction, Rs. 4.4 billion of three-month bills had been sold at a Weighted Average Yield Rate (WAYR) of 7.52%, identical to the previous week’s auction.

Similarly, Rs. 18.8 billion from the received bids of Rs. 54.2 billion for the six-month bills had been accepted by the CBSL at a WAYR of 7.89%, identical to the previous week’s auction.

Furthermore, Rs. 4 billion of 12-month bills had been sold at a WAYR of 8.02%, identical to the previous week’s auction.

Source: The morning