6-month yields drop 22bps at auction and 28bps in secondary trading as demand strengthens for medium-term maturities
Sri Lanka’s government securities market saw yields decline across the curve on Tuesday, driven by strong secondary market buying interest and confirmed by a weekly Treasury bill auction that cleared at lower rates than the previous session.
The Public Debt Management Office raised the full offered amount of LKR 140.0 billion at Tuesday’s T-bill auction. The 3-month bill raised LKR 72.8 billion and the 6-month bill raised LKR 50.0 billion, both meeting their allotted portions. The 12-month bill raised LKR 17.2 billion, falling short of its LKR 35.0 billion offer.
Weighted average yields fell across all three tenors. The 3-month yield eased 9 basis points to 9.77%, the 6-month yield dropped 22 basis points to 9.99%, and the 12-month yield edged down 1 basis point to 10.19%. The 6-month move clears the threshold for a material single-day yield shift.
Secondary market trading corroborated the auction’s signal, with elevated volumes across the curve. Buying interest concentrated in bonds maturing in 2030 and 2031. Comparing yesterday’s secondary market curve to today’s, the 6-month tenor fell 28 basis points, while tenors from the 2-year through 10-year points each declined between 10 and 50 basis points, with the steepest movement seen in the 4-year segment, which fell 50 basis points.
Bonds maturing between October 2029 and December 2029 traded in a range of 10.95% to 11.00%. Longer-dated maturities across 2030 traded between 11.10% and 11.40%, while the 2032 segment traded between 11.85% and 11.90%. At the long end of the curve, bonds maturing in 2036 and 2037 traded at 12.60% and 12.70% respectively.
Foreign holdings of government securities rose 3.53% week-on-week, continuing a steady upward trend over recent weeks.
Separately, overnight liquidity in the banking system contracted to LKR 165.38 billion from LKR 204.74 billion in the prior session, while the Sri Lankan rupee was little changed against the US dollar, closing at LKR 335.73 compared to LKR 335.72 previously.
Key Numbers
| Metric | Value |
|---|---|
| 3M T-bill yield | 9.77% (-9bps) |
| 6M T-bill yield | 9.99% (-22bps) |
| 12M T-bill yield | 10.19% (-1bp) |
| Secondary market 6M yield (vs. yesterday) | -28bps |
| Secondary market 4Y yield (vs. yesterday) | -50bps |
| T-bill auction total raised | LKR 140.0 billion (fully subscribed) |
| 12M bill raised vs. offer | LKR 17.2Bn vs. LKR 35.0Bn offered |
| Foreign holding of GSecs (WoW) | +3.53% |
| Overnight liquidity | LKR 165.38 billion (from LKR 204.74Bn) |
| USD/LKR | 335.73 (from 335.72) |
Business Impact
The broad-based decline in yields signals easing short-term borrowing costs for the government and potentially for corporates benchmarking against the government curve. The undersubscription of the 12-month bill relative to its offer suggests investor demand remains more concentrated at the shorter and medium tenors rather than the full year maturity. For businesses monitoring the interest rate environment, the combination of falling yields and rising foreign participation in government securities points to improving conditions in the domestic debt market, though the sharp contraction in overnight liquidity is worth watching as a potential constraint on short-term funding availability in the banking system.
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.