Early Retirement

The government plans to retire some of its domestic debt starting next month, due to an influx of dollars into the market.
The long-awaited US$ 100 mn loan from Citibank is expected to come through within the next few weeks.rn

rnThe five-year syndicated loan, which is backed by Nippon Export Investment Insurance Company of Japan, was given the Presidential go ahead recently. The issue is now pending legal paperwork.rn

rnThe cut on commercial borrowings come on the back of a promised second tranche of IMF funds, as well as other donor support which is expected to flow in later this year.rn

rnMarket watchers expect a Rs. 16 bn cut in domestic borrowings this year, due to the heavy dollar inflow.rn

rnAnticipating a cut in the borrowing programme, there has been a steep drop in treasury yields this weeks auctions.rn

rnAt Thursdays bond auction, three-year yields fell 161 basis points to 7.44 percent and four-year issues dropped 172 basis points to 7.38 percent.rn

rnThe three-year auction was oversubscribed with Rs. 8.645 bn worth of bids, while the four-year bond issue attracted bids for Rs. 12.665 bn.rn

rnBut, the Central Bank offered and accepted bids for Rs. 2 bn for each issue. rn

rnIf anticipated foreign aid inflows materialise, analysts say domestic government debt issues are likely to be in short supply in the future.rn