Sri Lanka’s Public Debt Management Office sold an additional Rs.4.3 billion of Treasury bills on tap at the weighted average rates set at Tuesday’s auction, after the main auction was undersubscribed.
The debt office placed Rs.4.3 billion of bills, splitting the issuance across the three-month maturity at 9.36 percent, the six-month at 9.68 percent and the 12-month at 9.83 percent — the same weighted average yields recorded at the close of the May 26 auction. Settlement is on May 29.
Tuesday’s auction raised Rs.95.55 billion against Rs.140 billion offered across the three maturities, leaving a roughly Rs.44 billion shortfall. Tap issuance, used when bids fall short of the offered volume, allows the debt office to top up at the same yield curve without re-running a competitive auction.
The tap follows the Central Bank’s surprise 100 basis-point rate hike at its May 26 policy meeting, which raised the policy rate to 8.75 percent — the first rate increase of the cycle and a tightening larger than analyst calls. The hike was framed as a pre-emptive response to renewed inflation pressure from higher global oil prices and a softer rupee, and was accompanied by a credit-survey-based assessment of conditions before the decision.
Markets had absorbed the higher policy rate before this week’s auction, but yields on shorter-maturity bills have continued to drift up as the curve adjusts. The Rs.4.3 billion tap is modest in size relative to recent weekly issuance and indicates the debt office is willing to wait at the new yields rather than push pricing significantly higher to close the funding gap. Equity markets meanwhile pulled back at Tuesday’s close as investors digested the more hawkish CBSL stance.
