Benchmark 1-year yield makes about-turn at another outsize auction

The benchmark one-year bill reversed course and added back 10 basis points at the weekly primary bill auction held on Wednesday.

The one-year bill settled at 12.93 percent on Wednesday, giving up the decline in the yields, which occurred in the last few auctions. 

The Central Bank offered to raise a total of Rs.172.5 billion spread between three, six and twelve-month bills—Rs.60.0 billion, Rs.57.5 billion and Rs.55.0 billion each. 

But, it accepted only Rs.156.16 billion in total, raising Rs.75.11 billion, Rs.73.25 billion and Rs.7.79 billion, respectively, under the three tenures. 

During the last two auctions held in December, the Central Bank raised Rs.216 billion and Rs.185 billion each.
It wasn’t immediately clear why the about-turn in the one-year bill yields, as the country is gradually making progress after nearly two years of economic stress.

The bill yields saw some stubbornness in moving downwards coming into December, which the dealers and analysts attributed to the uncertainty. 

With the successful acquisition of the second International Monetary Fund (IMF) tranche and establishment of in-principle agreements with the official creditors, the uncertainty surrounding the continuity of the programme and debt restructuring has dissipated.

While it is yet to be confirmed, the recent trend of notably large auctions could be attributed to the government’s strategy of frontloading its fund requirements through shorter tenures. 

This expectation aligns with the anticipation that the yields and rates will continue to ease in the coming months, eventually reaching levels closer to the policy rates.

The Central Bank in November cut the key rates by another 100 basis points to bring the policy deposit and lending rates to 9 percent and 10 percent, respectively, to spur economic growth. Central Bank Governor, Dr. Nandalal Weerasinghe in November said the government would need less money from the markets after the successful implementation of the domestic debt optimisation programme.

He said the government is expected to receive substantial funding from multilateral agencies for budget support after the conclusion of the first IMF review in December.