Yields on longer-dated government securities rose sharply week-on-week even as short-tenor rates held largely steady, while overnight liquidity tightened and the rupee firmed against the dollar
Yields on longer-tenor government securities rose significantly over the past week, even as activity across the broader curve remained steady and short-end rates held largely unchanged.
The most pronounced moves were concentrated at the long end of the curve. The 10-year tenor (15-Aug-36) rose 35 basis points week-on-week to 12.65%, while the 13-year tenor (15-Aug-39) climbed 23 basis points to 12.85%. The 9-year tenor (15-Jun-35) also moved higher, up 15 basis points to 12.40%. By contrast, yields at the short end of the curve were flat to marginally lower, with the below-91-day and 182-day tenors easing 5 and 3 basis points respectively.
Trading activity in the secondary market was described as steady across the curve, with sustained buying interest despite moderate volumes. In the short-tenor segment, the 2028 maturities traded around 10.50%, while 2029 maturities traded in the 11.00%–11.05% range. The 2030 segment drew notable investor interest, trading between 11.30% and 11.60%, with most 2030 maturities and the 2031 maturity easing by roughly 10 basis points on the day.
On the currency front, the rupee appreciated marginally against the US dollar, closing at LKR 336.05 compared to LKR 336.18 previously. Overnight liquidity in the banking system contracted to LKR 183.34 billion from LKR 195.00 billion in the prior session.
Foreign holdings of local government securities continued to rise, up 3.30% week-on-week, extending a steady increase over recent weeks.
Key Numbers
| Tenor | Today’s Yield | WoW Change |
|---|---|---|
| < 91 Days | 9.80% | -5 bps |
| < 182 Days | 10.18% | -3 bps |
| 9Y (15-Jun-35) | 12.40% | +15 bps |
| 10Y (15-Aug-36) | 12.65% | +35 bps |
| 11Y (15-Jan-37) | 12.75% | +5 bps |
| 13Y (15-Aug-39) | 12.85% | +23 bps |
| USD/LKR | 336.05 | Appreciated from 336.18 |
| Overnight Liquidity | LKR 183.34 billion | Down from LKR 195.00 billion |
Business Impact
The sharp rise in long-tenor yields, well above the 20-basis-point threshold that typically signals a material shift, points to reduced investor appetite for longer-duration exposure relative to shorter maturities. For corporates and institutions with financing plans tied to long-term government benchmarks, this steepening at the long end may translate into higher borrowing costs for instruments priced off longer tenors. The contraction in overnight liquidity, alongside steady short-end rates, suggests near-term funding conditions remain manageable even as the long end of the curve reprices. The marginal rupee appreciation offers modest relief for importers, though the move is too small to signal a shift in the broader currency trend.
Source Attribution
Source: Central Bank of Sri Lanka statistics and publicly available market information.