Week-on-week moves were small, and strong demand at the latest bill auction kept short-term borrowing costs in a narrow range
Sri Lanka’s government securities yield curve moved only slightly over the week to Friday. Yields on short-term bills edged lower, while yields in the middle of the curve rose by 5 to 10 basis points. A basis point is one-hundredth of a percentage point.
In the secondary market, the 91-day and 364-day bills yielded 9.20% and 9.90% on Friday, each 5 basis points lower than a week earlier. The 182-day bill was unchanged at 9.45%.
The two-year and three-year yields rose 5 basis points each, to 10.60% and 10.90%. The four-year and five-year points did not move, at 11.15% and 11.40%. Further out, yields were 5 to 7 basis points higher between the six-year and eight-year maturities. The largest move of the week was a 10 basis point rise to 12.10% on the nine-year maturity. At the long end, the ten-year yield rose 3 basis points to 12.18%, while the eleven-year and thirteen-year yields fell 3 and 8 basis points, to 12.18% and 12.23%.
Across the whole curve, the gap between the 91-day bill and the thirteen-year bond was about 303 basis points, little changed from a week earlier. The difference was in the middle: the gap between the one-year and nine-year yields widened by about 15 basis points to 220.
Yields were unchanged from the previous day across all tenors, and trading was light. Bonds maturing in August and October 2030 changed hands between 11.15% and 11.20%. A February 2031 bond traded at 11.25%, a December 2032 bond at 11.70% and an October 2034 bond at 12.00%.
At the latest Treasury bill auction, yields on the 91-day, 184-day and 364-day bills were 9.25%, 9.41% and 9.95%, up 5, 4 and 2 basis points respectively. Demand was strong. The first phase drew bids of LKR 201.2 billion for the LKR 80 billion on offer, about 2.5 times the amount, and the full LKR 80 billion was accepted. The second phase accepted LKR 8 billion of LKR 20.9 billion in bids. Auction yields and secondary market yields are measured over different periods, so they are not directly comparable.
Liquidity in the banking system rose to LKR 360.11 billion from LKR 355.13 billion the previous day. LKR 80.9 billion of Treasury bills mature in the week ending 9 October. Total outstanding government securities were LKR 18.85 trillion, with Treasury bonds at LKR 16.49 trillion and Treasury bills at LKR 2.36 trillion.
Key Numbers
| Tenor | Yield (2 Oct) | Week on week |
|---|---|---|
| 91-day | 9.20% | -5 bps |
| 182-day | 9.45% | 0 |
| 364-day | 9.90% | -5 bps |
| 2-year | 10.60% | +5 bps |
| 3-year | 10.90% | +5 bps |
| 5-year | 11.40% | 0 |
| 9-year | 12.10% | +10 bps |
| 13-year | 12.23% | -8 bps |
| Auction | Yield | Change |
|---|---|---|
| 91-day | 9.25% | +5 bps |
| 184-day | 9.41% | +4 bps |
| 364-day | 9.95% | +2 bps |
Banking system liquidity: LKR 360.11 Bn, up from LKR 355.13 Bn.
Business Impact
Treasury bill yields are a common reference point for short-term funding costs, and rates on some floating-rate loans can follow them. Short-term yields moved by no more than 5 basis points, and the auction was well covered, so there is no sign of pressure on short-term funding costs. Companies planning longer-term borrowing or bond issues should note that mid-maturity yields have edged up slightly. The size of that move is small, and one week’s change is not a trend.
This article reports market data and is not investment advice.
Source Attribution: Central Bank of Sri Lanka statistics and publicly available market information.