Investors pumping funds into T-Bills and T-Bonds despite low yield rates

By Sanath Nanayakkare

The yield rates of T-Bills and T-Bonds showed a downward trajectory during the course of last week; nevertheless both these debt instruments were notably oversubscribed by investors.The weekly T-Bill auction was oversubscribed by 2 times and T-Bond auction was oversubscribed by 3.5 times during the reporting week.

The total volume of secondary market transactions in T-Bills and T-Bonds increased by 4 per cent in the reporting week compared to the week before, according to the Central Bank of Sri Lanka.

According to a press release issued by the Public Debt Department on 17th May 2024, the Treasury Bill issuance held on May 15th had been oversubscribed.

“Rs. 17,750 million being the maximum aggregate amount offered was raised at phase II, from the Treasury bills at the Weighted Average Yield Rates of 9.04% and 9.43%, respectively, determined at the auction, out of the total market subscription of Rs. 96,970 million.

Similarly, the Treasury bond auction held on 13 May 2024, raised the targeted Rs. 7,000 million (Rs. 1,500 million, 2,500 million and Rs. 3,000 million) out of the total market subscription of Rs. 62,555 million via the Direct Issuance Window, at the Weighted Average Yield Rates of 11.01%, 11.85% and 12.17% respectively, determined at the auction.

Meanwhile, on the banking front, the Weekly Average Weighted Prime Lending Rate (AWPR) for the week ending 17th May 2024 decreased by 27 bps to 9.65 per cent compared to the previous week.

“The government raised its targeted amounts quite easily at the last T-Bill and T-Bond sale with investors preferring to pump funds into short term debt instruments. It appears that they expect interest rates will further decline in the future and probably think might as well obtain a low return on their investment because it is anyway a steady source of income,” an analyst familiar with short term debt instruments told The Island Financial Review.