While secondary market trading was thin to start the week, yields on longer-dated government bonds rose as much as 50 basis points over the past week, even as short-tenor rates eased.
Sri Lanka’s government securities market opened the week quietly, with secondary market activity described as insignificant on Monday. But a look beyond the day’s thin trading shows a more consequential shift building over the past week: yields at the long end of the curve have risen sharply, while short-tenor rates have moved the opposite way.
Comparing bid yields across tenors from a week earlier, maturities under one year eased by 5 to 12 basis points. Yields on longer maturities, however, moved firmly higher. The 10-year tenor rose 20 basis points, the 11-year climbed 50 basis points, and the 13-year tenor gained 43 basis points over the week. Tenors in the 7-to-9-year range also rose by 28 to 30 basis points each, comfortably clearing the threshold considered a meaningful market move.
The result is a steepening of the yield curve, with the gap between short and long tenors widening compared to a week ago. In Monday’s limited secondary trading, two long-dated maturities — 15 December 2032 and 15 January 2033 — changed hands at 12.00%, broadly in line with recent levels.
In the primary market, a recent Treasury bill auction saw yields ease slightly across all three tenors compared to the prior auction, with 91-day, 182-day and 364-day bills all easing by single-digit basis points. A separate Treasury bond auction drew total bids of LKR 15.16 billion, with weighted average yields ranging from 11.57% to 12.58% across the maturities offered.
Foreign holdings of government securities continued to build, rising 4.54% week-on-week to LKR 176,561 million, extending a steady increase seen since early June. Overnight liquidity in the banking system was little changed, edging up marginally to LKR 168.13 billion.
The Central Bank of Sri Lanka is scheduled to announce its fourth Monetary Policy Decision of 2026 on 22 July, a decision markets are likely to weigh against this week’s long-end yield movement.
Business Impact
The steepening trend in long-tenor yields is a more significant development for corporate treasurers and financial institutions than the day’s quiet secondary trading suggests. Rising long-end yields typically reflect higher compensation demanded for longer-duration risk and can influence long-term borrowing costs for both government and corporate issuers. Businesses with medium- to long-term funding plans may want to factor this shift into financing decisions ahead of Wednesday’s policy announcement.
Key Numbers
| Tenor | Yield (Bid) | WoW Change |
|---|---|---|
| Under 1 Year | 10.15% – 10.20% | -5 to -12 bps |
| 4 Year | 11.50% | +10 bps |
| 5 Year | 11.65% | +15 bps |
| 9 Year | 12.18% | +28 bps |
| 10 Year | 12.20% | +20 bps |
| 11 Year | 12.55% | +50 bps |
| 13 Year | 12.60% | +43 bps |
| Foreign Holding of G-Secs | LKR 176,561 Mn | +4.54% WoW |
| Overnight Liquidity | LKR 168.13 Bn | +LKR 0.16 Bn |
Source Attribution:
Source: Central Bank of Sri Lanka statistics and publicly available market information.