The overarching fear of the future of domestic debt in Sri Lanka’s debt restructuring process got the better at today’s (Wednesday 29 March) Rs 120,000 million administered weekly Treasury (T) Bill auction, resulting in Central Bank of Sri Lanka (CBSL) being able to sell only 72.28 per cent (Rs 86,738 million) of the total offer.
Such a parlous performance was aided by CBSL being able to sell only 28.38 per cent (Rs 8,514 million) of the benchmark 364 day maturity compared to its original offer of Rs 30,000 million; followed by only 67.75 per cent (Rs 20,326 million) of the 182 day maturity compared to its original Rs 30,000 million offer and 96.50 per cent (Rs 57,898 million) of the 91 day maturity compared to its original Rs 60,000 million offer, respectively.
However, aided by an administered auction, the weighted average yields (WAYs) of the 91, 182 and 364 day maturities fell by 24, 33 and a miniscule one basis point (bp) each week on week (WoW) to 25.99, 25.79 and 24.31 per cent respectively at today’s auction.
The fact that the WAY of the longer tenure 364 maturity being smaller than both the shorter tenure 91 and 182 day maturities for the thirty first consecutive market week to today and that of only the 91 day maturity being greater (vis-à-vis the 364 day maturity) for the thirty second consecutive market week to today are indications that the market expects yield pressure to last only in the ‘short’ term. Settlement date is on Friday (31 March).
CBSL on behalf of the Government of Sri Lanka (GoSL) will have to repay maturing T Bills of known tenures totalling Rs 88,743 million to the market by Friday.
Their splits are Rs 83,985 million 91 day maturities, Rs 4,415 million 182 day maturities and Rs 343 million 364 day maturities, respectively. Howbeit, maturing T Bills held by the CBSL and also repayable by tomorrow are unknown as CBSL the steward of GoSL debt doesn’t disclose such figures.
Additionally another 182 day maturity, embedded in both 182 and 364 day maturities and totalling Rs 173 million in full, is also repayable to the market by Friday. However, CBSL hasn’t given their separate splits, ie the value of the 182 day maturity separately and the value of the 364 day maturity embedded in the above full total of Rs 173 million, separately, respectively.
Investments in T Bonds and T Bills are generally risk free, because, in the event GoSL is unable to repay such debt, CBSL is mandated to print demand-pull inflationary money and repay such creditors. Money printing is the CBSL’s sole and exclusive prerogative. CBSL is the steward of GoSL debt. GoSL’s FVMP debt is the value of T Bills and T Bonds in CBSL’s holdings. Selling T Bills and T Bonds to the domestic market is a popular way that GoSL raises money to meet its local needs.