August 7, 2006 (LBO) – Sri Lanka’s Central Bank sold three-year treasury bonds at yields of 11.05 percent on Monday, after rejecting all bids at a similar auction last week. The bank offered a billion rupees worth of bonds to the market but accepted only 850 million rupees worth of bids.
|Amount offered||LKR 1.00 bn|
|Bids received||LKR 1.85 bn|
|Amount accepted||LKR 850 mn|
|Weighted average yield||11.05%|
Source : Central
Today’s yield of 11.05 percent was the same as a previous auction held on July 17, which may indicate the bank’s intention of holding down interest rates, traders said.
Dealers said the bank may have also rejected higher bids in an attempt to keep yields down.
The Central Bank has also raised its key interest rates for two-consecutive months as it looks for ways to curb inflation.
The repurchase rate, which drains money from the banking system, now stands at 9.125 percent, while the reverse repurchase rate is at 10.625 percent.
Sri Lanka’s borrowing costs have been creeping up stealthily as fierce fighting between government troops and Tamil Tiger rebels in the recent weeks has renewed fears that the island was slipping back to civil war. However, secondary market trading was light throughout the day with yields for three and four year bonds unchanged at 11.30 percent and 11.45 percent respectively.