Sri Lanka Treasuries yields fall

May 12, 2010 (LBO) – Sri Lanka Treasuries yields fell at Wednesday’s auction though not all maturing bills were sold to real buyers, the government’s debt office, which is a unit of the Central Bank said. The 3-month yield fell to 06 basis points to 8.18 percent, the 6-month yield fell 09 basis points to 8.88 percent and 12-month yield fell 02 basis points to 9.23 percent.

The central bank said it had accepted only 10.3 billion rupees in bids from the market in an auction to roll over 12.5 billion rupees in maturing Treasuries.

Sri Lanka’s central bank routinely prints money to buy up Treasuries effectively targeting the 3, 6 and 12 month rates in addition to its main policy rate, due to a flaw in Sri Lanka’s monetary policy.

As a result Sri Lanka central bank targets the overnight policy rate, the 3-month bill yield, 6-month bill yield and the 12-month bill yield. In the past several decades such ‘quantity easing’ had led to high inflation and exchange rate depreciation despite the main policy rate being much higher than that of the anchor US currency.