Foreign appetite for rupee bonds climbs nearly 4% week-on-week, even as foreign investors exit local equities
Foreign holdings of Sri Lankan government securities continued to climb, rising approximately 3.98% week-on-week to LKR 210,564 million as of the latest reporting week, extending a steady upward trend that has been building over the past several weeks.
The increase continues a run of consecutive weekly gains in foreign holdings of rupee-denominated bonds, which have risen from roughly LKR 176,561 million in mid-July to over LKR 210,564 million by the end of August — an increase of close to 19% over that period. The trend stands in contrast to the picture in equities, where foreign investors have been net sellers, both on the day and cumulatively for the year, with year-to-date equity outflows exceeding LKR 56 billion.
The divergence suggests that while overseas investors have been cautious on Sri Lankan stocks, government debt has continued to attract steady foreign interest, potentially reflecting relatively attractive yields on offer across the curve, alongside broader confidence in the fixed income market’s stability. Secondary market yields on government securities were largely unchanged from the previous week, with the yield curve holding steady across most tenors even as foreign holdings grew.
Business Impact
Rising foreign participation in the government securities market is a broadly positive signal for the sovereign’s external financing position, potentially supporting rupee stability and easing pressure on domestic borrowing costs. For businesses and corporate treasurers, sustained foreign demand for government debt can be a stabilizing factor for the interest rate environment, even as equity market sentiment among foreign investors remains more cautious.
What to Watch Next
Whether the divergence between bond and equity flows persists, and whether rising foreign bond holdings begin to filter through into greater foreign interest in equities, will be worth tracking in the coming weeks.
Key Numbers
| Metric | Value |
|---|---|
| Foreign Holdings of GSecs (latest week) | LKR 210,564 Mn |
| Week-on-Week Change | +3.98% |
| Foreign Holdings (mid-July) | LKR 176,561 Mn |
| Approx. Change Since Mid-July | +19% |
| Foreign Equity Flow (YTD, for comparison) | -LKR 56,352.9 Mn |
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.