Yields To Move Up Ahead Of Polls
- T. Bill Stock Increases By 24%
Treasury (T) Bill yields continued with its upward trend at Tuesday’s primary auction which market sources attributed to seasonal pressure coupled with the forthcoming coming presidential elections.
Meanwhile, Central Bank of Sri Lanka’s (C.B.S.L.’s) T Bill stock in the week ended December 23, week on week increased by Rs. 6,070 million or 24.3% to Rs. 31,000 million, indicating that new or printed money has entered the system, a tool to drive inflation up due to increased demand pressure.
A C.B.S.L. source said that the Bank has enough space to subscribe to T Bills, after retiring some Rs. 125 billion worth of T Bills which it had in stock last year.
Increased inflation means that prices are on the upward trend, with the poor suffering the most through such economic activity.
Inflation, as measured by the point to point change in the Colombo Consumers’ Price Index increased to 4.8% last month, as opposed to a point to point change of 2.8% in November, a two percentage point increase or a 71.4% month on month increase to December.
At Tuesday’s auction, T Bills of 91, 182 and 364 day maturities moved up by six, eight and one basis points (b.p.s) each to 7.73%, 8.73% and 9.33% respectively at this auction.
“Historically we have noticed yields moving up ahead of a major election,” one market source said. Government expenditure also increases before a key election, that also tends to move interest rates up, he said.
“We shall see a gradual increase in yields in the run-up to the polls, after which we shall see it tapering down,” the source said.
Further, T Bond yields of 2013 maturities at Monday’s primary auction fetched a price that was 100 basis points lower than the yields fetched in secondary market trading, pointing out to captive funds of the state being directed to subscribe to the Government’s last T Bond auction for the year in order to keep yields artificially low, the source said.
“T Bonds of 1.2.2013 maturity at secondary market trading fetched yields of 10.75%, whereas T. Bonds of 15.6.13. maturity at Monday’s primary auction commanded a weighted average yield of 9.78%,” he said.
The market is flushed with liquidity, the source said and regardless of who wins the elections, the market feels that the economy is heading in the right direction, he added.
Though the pace for the better would be quickened if General Sarath Fonseka wins, rather than the incumbent President, the source said.
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