Five- and six-year yields rise more than 20 basis points week-on-week while Treasury bill rates fall, ahead of Thursday’s LKR 250 billion bond auction
Sri Lanka’s government securities market saw a notable divergence over the past week, with yields on medium-to-long-dated bonds rising even as short-term Treasury bill rates fell, steepening the yield curve ahead of Thursday’s LKR 250 billion Treasury bond auction.
Yields on bonds in the five-year segment of the curve rose 20 basis points week-on-week, while six-year yields climbed 25 basis points. Longer-dated maturities also moved higher, with yields in the ten- and eleven-year segments rising 10 and 15 basis points respectively. At the same time, short-term rates eased: the 91-day Treasury bill yield fell 18 basis points to 9.95% at the most recent auction, while the 182-day rate dropped 3 basis points to 10.24%.
Secondary market activity was described as tepid overall, concentrated around bonds maturing in 2030, which traded at yields between 11.60% and 11.68%, and around 2033 maturities, which traded at 12.19% to 12.27%. Trading volumes were moderate as investors held back positions ahead of new supply from the PDMO’s four-maturity bond auction.
The pattern of rising long-end yields against falling short-end rates is consistent with investors demanding higher compensation for longer-duration risk as the market absorbs a large new bond issuance, while ample near-term liquidity has kept short-term borrowing costs contained. Overnight liquidity in the banking system expanded to LKR 173.80 billion from LKR 163.07 billion over the same period.
Business Impact
A steepening yield curve typically signals that markets expect higher long-term borrowing costs relative to near-term rates. For businesses, this points to potentially higher costs for long-tenor corporate debt and project financing pegged to government bond benchmarks, even as short-term working capital costs remain comparatively favourable. Fixed income investors will be watching whether Thursday’s auction results confirm or ease this week’s upward pressure on long-end yields.
Key Numbers
| Metric | Value |
|---|---|
| 5-Year Yield Change (WoW) | +20 bps |
| 6-Year Yield Change (WoW) | +25 bps |
| 10-Year Yield Change (WoW) | +10 bps |
| 11-Year Yield Change (WoW) | +15 bps |
| 91-Day T-Bill Yield | 9.95% (-18 bps) |
| 182-Day T-Bill Yield | 10.24% (-3 bps) |
| Overnight System Liquidity | LKR 173.80 billion |
| Upcoming T-Bond Auction | LKR 250 billion (30 July) |
Source: Central Bank of Sri Lanka statistics and publicly available market information.