Sri Lanka Treasuries yields up, amid monetization

Mar 03, 2010 (LBO) – Sri Lanka’s 3-month Treasury bill yields moved up 12 basis points to 8.38 percent at Wednesday’s auction, but only a part of maturing bills was sold to real buyers, the government’s debt office said. By the first week of February the central bank’s Treasury bill stock had climbed to 52 billion rupees.

With the onset of debt monetization, the central bank has also started to lose foreign reserves from December 2009.

The 6-month yield moved up 06 basis points to 9.12 percent while the 12-month yield stayed flat at 9.47 percent.

The debt office, which is a unit of the Central Bank, said only 9.52 billion rupees of bills out of a maturing volume of 11.0 billion rupees was sold to real buyers.

Sri Lanka’s central bank has been printing money to buy up Treasury bills since late last year as the government budget went off the rails due to unchecked spending in the wake of weak revenue growth.

According to finance ministry data Sri Lanka’s budget deficit last year expanded to 10.3 percent of gross domestic product from a planned 7.0 percent in 2009 contained in a deal with the International Monetary Fund.

IMF suspended the deal last week pending the presentation of a new budget in April.

Though bill yields have been moving up, they have not risen fast enough to prevent monetization.