Secondary market investors position cautiously as 5- to 7-year maturities see the sharpest weekly yield increases, with foreign buying concentrated in 2030 paper ahead of Wednesday’s policy announcement
Yields on Sri Lankan government securities rose sharply at the middle segment of the curve over the past week, as investors in the secondary bond market positioned ahead of Wednesday’s central bank monetary policy announcement and an accompanying Treasury bill auction.
The 5-year, 6-year and 7-year maturities each saw yields climb by roughly 30 basis points week-on-week, exceeding the threshold typically associated with material market moves. The 4-year and 8-year segments also firmed, rising 10 to 20 basis points over the same period, while movement at the very short end of the curve was comparatively muted.
Trading activity was described as moderate rather than heavy, consistent with investors positioning cautiously rather than making large directional bets ahead of the policy decision. Within this activity, a clear divergence emerged between foreign and local participants. Foreign buying interest was concentrated in maturities around 2030, with the 15.10.2030 bond trading in a range of 11.60% to 11.65%. By contrast, local investors were net sellers in 2031 maturities, where the 15.03.2031, 15.05.2031 and 01.12.2031 bonds traded between 11.95% and 12.01%.
Further out on the curve, 2032 maturities traded in a 12.00% to 12.10% range, while the 15.06.2034 bond — one of the segments most affected by the weekly yield increase — traded at 12.25%.
Overnight liquidity in the banking system contracted over the period, falling to LKR 162.36 billion from LKR 168.13 billion previously, a tightening that coincided with the broader cautious positioning across the market.
On the currency front, the rupee was little changed, depreciating marginally to LKR 336.27 against the US dollar from LKR 336.23.
The move in yields comes as markets await the central bank’s rate decision, due Wednesday alongside T-bill auction results. Both are expected to provide clearer direction for the fixed income market in the sessions ahead.
Key Numbers
| Maturity Segment | Yield / Range | WoW Change |
|---|---|---|
| 15.09.2029 | 11.15% | — |
| 15.10.2030 | 11.60% – 11.65% | +5 bps |
| 2031 segment (Mar/May/Dec) | 11.95% – 12.01% | +30 bps |
| 2032 segment (Jul/Oct/Dec) | 12.00% – 12.10% | +10 bps |
| 15.06.2034 | 12.25% | +30 bps |
| Overnight Liquidity | LKR 162.36 Bn | -LKR 5.77 Bn WoW |
| USD/LKR | 336.27 | +0.04 |
| Foreign GSec Holdings | LKR 176.56 Bn | +4.54% WoW |
Business Impact
Rising mid-curve yields signal that the market is pricing in the possibility of a less accommodative stance from the central bank, which has implications for corporate borrowing costs and fixed deposit returns in the months ahead. The divergence between foreign buying in shorter 2030 paper and local selling in 2031 maturities suggests differing views on the near-term rate path between domestic and international investors. Businesses with variable-rate debt or upcoming refinancing needs should note the tightening liquidity conditions and firming yield environment as the policy decision approaches.
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.