Sri Lanka 3-month Treasuries up, other bids rejected

Dec 14, 2011 (LBO) – Sri Lanka’s 3-month Treasuries yield increased 15 basis points to 8.43 percent at Wednesday’s auction while the state debt office rejected bids for other maturities. The state offered 10 billion rupees of bills for re-issue and accepted only 4.7 billion rupees of bids.

Six and 12-month bids were rejected. Last week 6-mont bills were sold at an average rate of 8.56 percent and 12-month bills were sold at 9.06 percent.

Sri Lanka is under balance of payments pressure due to a delay in raising rates amidst strong credit growth. Rates have adjusted upwards over the past few months amid foreign reserve losses.

Highly rated banks are offering over 10 percent for three month deposits.

Rejections of bids at auction have been a feature of balance of payments pressure episodes in the past.

Bid rejections allow the central bank to buy Treasuries with its own credit (printed money) and inject liquidity to sterilize interventions in the forex market.

But in December there is an upturn in seasonal cash demand. The rupee was also devalued over 3 percent in November which also alters the price structure in the country, requiring a larger monetary base to carry out the same transactions.

In the longer term markets a bond maturing in 2015 which was quoted around 9.85/90 percent on Tuesday moved up to 10.00/05 percent dealers said.

A 2014 bond which was earlier quoted around 9.40/50 percent levels moved up to 9.80/90 levels, dealers said.