Sri Lanka Treasuries yields edge higher

Dec 07, 2011 (LBO) – Sri Lanka’s Treasuries yields increased across maturities at Wednesday’s auction with the average 12-month yield topping 9.0 percent for the first time in over 17-months official data shows. The 3-month yield rose 8 basis points to 8.28 percent, the 6-month yield rose 6 basis points to 8.56 percent and the 12-month yield rose 7 basis points to 9.06 percent, the state debt office which is a unit of the Central Bank said.

The average 12-month yield was 9.09 percent on July 23, 2010.

Treasuries yield have been climbing amid liquidity shortages coming from dollar sales to defend a peg with the US dollar, despite injections to money markets to ‘sterilize’ the interventions.

Since active sterilized interventions began on September 02, 2011, the 3-month auction yield has climbed 117 basis points; the 6-month yield has increased 137 basis points and the 12-month yield 1.81 percent.

Interest rates increase due to less than 100 percent sterilization of dollar sales. But full sterilization of dollar sales results in accelerated foreign reserve losses.

Sri Lanka’s peg with the US dollar at around 100 rupees in the spot market came under pressure due to high credit growth amid lower-than-optimum rates to finance the credit with deposits. Following a 3.0 percent devaluation announced in the budget a new peg has been established around 113.90 rupees.