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Sri Lanka Equity Forum » Political and Socio-Economic Analysis » Yields to fall due to Sovereign Bond

Yields to fall due to Sovereign Bond

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1 Yields to fall due to Sovereign Bond on Mon Nov 02, 2015 1:02 pm

Melissa Pereira


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

[size=13] Government of Sri Lanka (GoSL) through the Central Bank of Sri Lanka (CBSL) plans to sell Rs 17,000 million worth of Treasury (T) Bills to the market via a primary auction on Wednesday.[/size]


Yields however are expected to come down due to the receipt of GoSL's US$ 1.5 billion Sovereign Bond proceeds which are expected to enter the market either today or tomorrow.

Meanwhile, Wednesday's T Bill auction comprises Rs 2,000 million worth of 91 day or three months tenure T Bills, Rs 5,000 million worth of 182 day (six months tenure) T Bills and Rs 10,000 million 364 day (one year) T Bills respectively.
In the previous week CBSL sold Rs 23,099 million worth of T Bills. Those comprised Rs 3,000 million worth of three months tenure Rs 17,454 million worth of six months tenure and Rs 2,645 million worth of one year tenure respectively.
Those tenures saw the weighted average yield (WAY) of the three months fall sharply by 10 basis points (bps) to 6.61%, the six months by four bps to 6.99% and the one year also by four bps to 7.06% respectively.

Recently, Parliament approved to enhance GoSL's T-Bill procurement float by Rs 400 billion to Rs 1.2 trillion. But the seemingly increased demand situation caused by such uplift vis-à-vis GoSL's borrowings, contrary to expectations by the market that that would push up rates, rather saw the contrary taking place with the WAYs fall across the board at last week's auctions.

This was so even at the previous week's auction (i.e. the weekly T-Bill primary auction held for the week ended 23 October, 2015), where the WAY for the three month maturity fell by two bps to 6.71% and that of the six months by one bps to 7.03%. Nonetheless, the one year maturity stayed put at 7.10% then.
Market sources told Ceylon FT, with the proceeds of last week's $ 1.5 billion sovereign bond sale due to hit the market either today or tomorrow, that would shave off a couple of more bps at Wednesday's T-Bill auction due to the expected surplus in excess liquidity such inflows would bring.

When GoSL sells those US dollars to CBSL, that causes a surfeit of excess liquidity (because CBSL provides rupees in lieu), making WAYs to come down due to an oversupply situation in the market. Market's excess liquidity as at Friday was Rs 82.24 billion.

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