Selling Pressure on Treasuries

Government of Sri Lanka’s (GoSL’s) at least direct, theoretical money printing borrowing costs (MPBCs) steeply increased by 5.30 per cent (Rs 3,762.47 million) to Rs 74,770.94 million yesterday (Monday 10 April) led by profit taking ahead of the ‘Avurudu’ holidays. Such an increase was caused by selling pressure of Treasury (T) Bills and T Bonds in secondary market trading yesterday.

Meanwhile, led by swap settlements between the GoSL and CBSL, where GoSL swapped rupees for US dollars with CBSL, that saw market liquidity weaken by Rs 275,887.33 million (USD 852.08 million) during the day’s trading yesterday. Conversions are based on last Tuesday’s (4 April) administered ‘spot’ value which was Rs 323.78 to the US dollar. Subsequently, market’s net shortfall increased by 476.34 per cent (Rs 256,696 million) to Rs 310,585 million yesterday.

Consequently, GoSL’s non-demand pull inflationary face value (FV) MP debt increased by rs 19,191.33 million and its FVMP debt as a whole by 0.65 per cent to Rs 2,979,530.44 million (Rs 2.9795 trillion) yesterday.

Meanwhile, CBSL’s open market operations (OMO) statistics, from where the above figures are extrapolated, lacks transparency. MP, coupled with being the steward of the country’s foreign reserves and of its debt is the exclusive prerogative of the CBSL. GoSL’s FVMP debt is equivalent to the totality of CBSL’s T Bill and T Bond holdings.

GoSL’s MPBCs are prorated to the outcome in secondary market trading of T Bills and T Bonds on the reference day. ‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and its foreign reserves deals in ‘spot.’ The ‘spot’ is administered to minimize GoSL’s foreign debt repayments and foreign debt as a whole in rupee terms.

Issuing of T Bills and T Bonds is a popular way GoSL raises money domestically to meet its local commitments. Investing in T Bills and T Bonds is generally considered as being riskless, because, in the event GoSL is unable to repay such debt, CBSL is normally mandated to print demand pull inflationary money and repay such creditors.

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