Equities edge higher on modest foreign buying while government bond yields rise across mid-tenors amid selling pressure
Key Highlights
The Colombo Stock Exchange closed higher, while the government securities market saw yields move upward across most tenors amid firmer selling interest. The rupee weakened marginally against the US dollar, and banking system liquidity edged lower.
Stock Market Summary
The All Share Price Index (ASPI) gained 69.47 points, or 0.33%, to close at 21,395.11, while the S&P SL20 added 11.75 points, or 0.20%, to end at 5,995.25. Market turnover rose to LKR 2,446.47Mn, up sharply from the previous session, though it remained 28.7% below the monthly average of roughly LKR 3.4Bn. Trading volume climbed to 118.17Mn shares. Market capitalisation stood at LKR 7,735.28Bn, up 0.4% on the day.
The Food, Beverage & Tobacco sector accounted for the largest share of turnover at 26%, with the Materials and Diversified Financials sectors together contributing a further 41%. Foreign investors were net buyers, with inflows of LKR 153.25Mn against outflows of LKR 84.89Mn, resulting in a net inflow of LKR 68.36Mn. Market valuations stood at a price-to-earnings ratio of 11.4x and a price-to-book ratio of 1.3x.
Fixed Income Summary
Sentiment in the government securities market turned more decisively toward selling, pushing yields higher across the curve. Mid-tenor bonds saw the sharpest movement, rising by roughly 25 basis points, while short and long-tenor instruments posted more modest increases of around 10 basis points.
Within the 2030 maturities, the 01.08.2030 and 15.10.2030 bonds traded between 10.60% and 10.75% before settling near 10.70% as buying interest returned. Further along the curve, the 15.01.2033 maturity traded between 11.15% and 11.20%, while the 15.10.2034 and 15.03.2035 bonds both changed hands at 11.70%. Longer-dated paper saw the 15.08.2036 maturity trade at 11.85% and the 01.07.2037 maturity at 11.95%.
At a T-bill auction settling September 4, yields declined across all tenors compared to the prior auction: the 91-day rate fell 10 basis points to 8.96%, the 184-day rate fell 17 basis points to 9.27%, and the 364-day rate fell 8 basis points to 9.81%.
Currency Market Update
The rupee depreciated slightly against the US dollar, trading at LKR 328.59 compared to LKR 328.05 previously. Separately, foreign holdings of local government securities rose 3.98% week-on-week, continuing a steady multi-week climb in overseas appetite for rupee-denominated debt.
Business Impact
The divergence between falling short-term T-bill yields and rising mid-to-long-tenor bond yields signals a market recalibrating rate expectations across the curve, which businesses and treasury managers relying on government securities for benchmarking should monitor closely. The modest rupee depreciation and marginal contraction in banking system liquidity, to LKR 330.09Bn from LKR 337.05Bn, are worth tracking but do not yet indicate a material shift. Continued net foreign buying in equities and rising foreign holdings of government debt point to gradually improving external confidence, though both remain well below levels needed to offset broader year-to-date outflow trends.
What to Watch Next
Market participants will be watching whether mid-tenor bond yields continue to climb, how sustained the recent uptick in foreign holdings of government securities proves to be, and whether equity turnover can close the gap with the monthly average.
Key Numbers
| Metric | Value | Change |
|---|---|---|
| ASPI | 21,395.11 | +69.47 pts (+0.33%) |
| S&P SL20 | 5,995.25 | +11.75 pts (+0.20%) |
| Turnover | LKR 2,446.47Mn | 28.7% below monthly average |
| Volume | 118.17Mn shares | — |
| Market Cap | LKR 7,735.28Bn | +0.4% |
| Net Foreign Flow (Equity) | +LKR 68.36Mn | Net buying |
| USD/LKR | 328.59 | Depreciated from 328.05 |
| Banking System Liquidity | LKR 330.09Bn | Down from LKR 337.05Bn |
| Foreign Holdings of GSec | +3.98% WoW | — |
| 91-Day T-Bill | 8.96% | -10 bps |
Source Attribution
Source: Colombo Stock Exchange market data, Central Bank of Sri Lanka statistics and publicly available market information.