Weekly T-bill auction clears lower across all maturities as banking system liquidity expands, while the 10-year and 13-year segments post the steepest weekly declines on the yield curve.
Sri Lanka’s government securities yields fell sharply across multiple tenors this week, with the steepest declines concentrated at the short end and the long end of the curve, as banking system liquidity continued to expand.
At the weekly Treasury bill auction held on August 19, yields fell across all three maturities on offer. The 91-day bill cleared at 9.22%, down 22 basis points from the previous auction. The 184-day bill fell 18 basis points to 9.60%, while the 364-day bill eased 10 basis points to 9.91%. Total bids received across the auction reached LKR 374.34 billion against LKR 140 billion offered in Phase One, with LKR 140 billion accepted, pointing to strong demand at the lower yield levels.
The decline was not confined to short-term instruments. Comparing yields over the past week, longer-dated maturities also moved significantly lower. The 10-year segment fell 25 basis points to 12.05%, while the 13-year tenor dropped 23 basis points to 12.10%. The 6-year and 7-year segments each declined 15 basis points, settling at 11.30% and 11.50% respectively. Movement across the remainder of the curve was comparatively modest, with several mid-curve tenors between 3 and 9 years largely unchanged week-on-week.
In the secondary market, trading activity was moderate with mixed sentiment across maturities. Bonds maturing in 2030 saw some profit-taking, trading between 10.75% and 10.90%, while the 2031 maturity attracted buying interest at 10.95%. Longer-dated bonds maturing in 2033 traded between 11.35% and 11.53%, and paper maturing in 2036 and 2037 changed hands between 12.00% and 12.10%.
Supporting the broader move lower in yields, liquidity in the banking system expanded to LKR 300.25 billion from LKR 288.98 billion in the prior session. The Central Bank’s holdings of government securities remained broadly stable over the past several sessions.
Foreign holdings of Sri Lankan government securities continued to build, rising 0.70% week-on-week to LKR 194.21 billion, extending a steady uptrend seen since early July when holdings stood at LKR 136.86 billion.
Separately, the Treasury has announced a new bond auction covering the 10.00% 2030 ‘A’ and 11.50% 2035 ‘A’ maturities, with LKR 30 billion and LKR 20 billion on offer respectively. The auction is scheduled for July 30, with results for a related two-phase T-bond auction still pending confirmation.
On the currency front, the rupee appreciated marginally against the US dollar, closing at LKR 331.23 compared to LKR 331.83 previously.
Business Impact
The broad-based decline in yields, particularly at the short end, signals easing near-term government borrowing costs and could translate into lower funding costs for banks and, over time, more accommodative lending conditions for businesses. The steep fall at the long end of the curve — with the 10-year and 13-year tenors both moving more than 20 basis points — suggests investors are pricing in a more favourable medium-term rate outlook. The steady rise in foreign holdings of government securities points to sustained external interest in Sri Lankan rupee debt, a positive signal for the government’s domestic financing programme. Businesses with floating-rate borrowings or upcoming refinancing needs may find conditions incrementally more favourable if the trend holds.
What to Watch Next
Attention now turns to the pending results of the two-phase Treasury bond auction and the newly announced auction covering the 2030 and 2035 maturities, both of which will offer further signals on investor demand and pricing at the long end of the curve. Continued growth in foreign holdings of government securities will also be watched as an indicator of external confidence in Sri Lanka’s fiscal trajectory.
Key Numbers
| Metric | Value | Change |
|---|---|---|
| 91-Day T-Bill Yield | 9.22% | -22 bps |
| 184-Day T-Bill Yield | 9.60% | -18 bps |
| 364-Day T-Bill Yield | 9.91% | -10 bps |
| 10-Year Yield | 12.05% | -25 bps (WoW) |
| 13-Year Yield | 12.10% | -23 bps (WoW) |
| Banking System Liquidity | LKR 300.25 Bn | +LKR 11.27 Bn |
| Foreign Holdings of GS | LKR 194.21 Bn | +0.70% WoW |
| USD/LKR | 331.23 | Appreciation from 331.83 |
| New Bond Auction (2030 + 2035) | LKR 50 Bn combined | — |
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.