Short-Term Government Borrowing Costs Rise as T-Bill Auction Yields Climb

All three Treasury bill tenors saw higher accepted yields at auction, signaling firmer short-term government funding costs

Yields at Sri Lanka’s latest Treasury bill auction rose across all three tenors on offer, pointing to a firming trend in the government’s short-term borrowing costs.

The 91-day bill was accepted at a yield of 9.18%, up 15 basis points from the previous auction. The 182-day tenor rose 12 basis points to 9.36%, while the 364-day bill increased 11 basis points to 9.88%. The auction, held with a settlement date of September 18, drew total bids across the offered tenors, with the full offered amount accepted at each maturity.

The rise at auction was consistent with movement in the broader secondary market, where yields on government securities increased across most points of the curve on a week-on-week basis, including gains of 20 basis points at the shortest end, comparable in tenor to the T-bill segment.

Short-term government yields serve as a reference point for banks and financial institutions in pricing short-term deposits, money market instruments, and short-tenor lending. Money market and gilt-focused unit trusts, which hold a mix of Treasury bills and bonds, are among the vehicles most directly affected by moves in this segment of the curve.

Banking system liquidity, meanwhile, expanded to LKR 324.79 billion from LKR 317.84 billion previously, even as short-term yields moved higher.

Business Impact

A rise in T-bill yields typically translates into higher short-term deposit and lending rates over time, affecting businesses that rely on working capital facilities, overdrafts, or short-tenor borrowing. It also affects returns on money market funds and similar short-duration investment vehicles commonly used by businesses and individuals to park short-term cash.

Key Numbers

Source: Central Bank of Sri Lanka statistics, Colombo Stock Exchange market data and publicly available market information.