President’s statement fails to assuage bond investors

The bill auction went undersubscribed for the second consecutive week yesterday, as President Ranil Wickremesinghe appeared to have failed to reassure the markets on the future stability of the economy, although stocks showed mixed performance. 

However, the three-months bill yield shed three basis points yesterday, continuing its months-long decline, while the overall secondary market witnessed limited activity. 

The three-month bill settled at 29.88 percent, taking the cumulative decline to 292 basis points since the current descent in bill yields began in mid-December last year.

The six-month bill and 12-month bill yields remained unchanged from last week, at 28.72 percent and 27.72 percent, respectively. 

The Central Bank offered Rs.100.0 billion in bills, at Rs.50.0 billion under three-month and Rs.25.0 billion each under six-month and 12-month bills.  However, it accepted only Rs.53.59 billion in the proportion of Rs.34.8 billion, Rs.12.64 billion and Rs.6.12 billion under three, six and 12-month tenures.  Wickremesinghe delivering his throne speech attempted to reassure the markets by projecting confidence over the faster conclusion to the negotiations to secure debt assurances, which will unlock the International Monetary Fund (IMF) bailout package.  However, China, Sri Lanka’s biggest bilateral lender, is yet to provide specific financing assurances on its debt to Sri Lanka, which is compulsory to unlock the IMF funding.

In the meantime, a potential domestic debt restructuring also continues to dampen the bond investor sentiment.