Treasury yields shoot up

December 20, 2006 (LBO)-- Sri Lanka's treasury bill rates rose sharply at Wednesday's auction following after the central bank hiked its key policy rate by 37.5 basis points last Friday.

One-year treasury yields climbed 18 basis points to 12.95 percent, while six-month paper rose 15 basis points to 12.
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78 percent and three-month treasuries jumped 20 basis points to 12.75 percent, the bank said in a statement.

The bank accepted 5.343 billion rupees of the 13.343 billion rupees worth of bills that were offered to the market.

The bank purchased the remaining 8.00 billion rupees in T-bills from the auction.

The central bank's practice of printing money or continuously buying T-bill issues from the market has come under fire from critics as it increases inflation and puts pressure on the balance of payments.

Maturity Bids received Amount accepted Weighted avg. yield
(Rs. mn) (Rs. mn) This week Last week
Three months 9,089 3,569 12.75 12.55
Six months 4,856 771 12.78 12.63
One-year 4,969 1,003 12.95 12.77
Total 18,914 5,343 - -
(Source: Central Bank)

As at December 19, central bank holding of T-bills had climbed to 84.158 billion rupees, according to bank figures, which is the highest on record since November 25, 2004, when it topped 76.113 billion rupees.

Total government debt rose to 103.6 billion rupees in September this year, triggering severe pressure on the balance of payment and pushing consumer inflation to 19.8 percent on year in November, the highest this decade.
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Since November 15, yields for 12-month rates have jumped 73 basis points, six months 60 basis points and 3-monhts 76 basis points, to keep pace with secondary market rates which are trading at a slight higher yield, with no takers.

The central bank's repurchase now stands at 10.0 percent, while the reverse repurchase rate is at 11.5 percent.

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