Sri Lanka rupee opens weaker in early trading as the currency slipped marginally against the US dollar while government bond yields edged lower on renewed buying interest. Market participants remained cautious amid mixed signals across foreign exchange, debt, and equity markets.
Sri Lanka rupee opens weaker amid steady demand for government bonds
The Sri Lanka rupee opened weaker against the US dollar on Tuesday, reflecting subdued sentiment in the spot foreign exchange market even as government bond yields edged lower amid increased investor interest. Currency dealers quoted the rupee at 309.90/310.10 to the dollar, compared with 309.95/310.05 at the previous session’s close, signalling a marginal depreciation at the start of the trading day.
Market participants attributed the slight weakening to routine demand pressures and cautious positioning rather than any sharp deterioration in macroeconomic fundamentals. Despite recent improvements in Sri Lanka’s external and fiscal balances, traders noted that the currency continues to adjust within a narrow range as import demand, liquidity conditions, and portfolio flows influence short-term movements.
In the domestic bond market, yields softened modestly across several maturities as buying interest picked up, particularly in mid-tenor securities. The bond maturing on February 15, 2028, was quoted at 9.00 to 10.00 percent, while the March 15, 2028 maturity traded at around 9.05 to 9.15 percent. Securities maturing in October 2028 were quoted at approximately 9.15 to 9.25 percent, reflecting slightly firmer prices.
Longer-dated bonds also saw mixed but generally stable movements. The October 15, 2029 maturity was quoted at around 9.67 to 9.70 percent, while the December 15, 2029 bond edged lower to 9.71 to 9.73 percent from the previous day’s 9.73 to 9.75 percent. The July 1, 2030 bond was quoted at approximately 9.75 to 9.85 percent, down marginally from earlier levels.
Further along the yield curve, the March 15, 2031 bond traded at about 9.95 to 10.05 percent, while the October 15, 2032 maturity was quoted near 10.32 to 10.35 percent. The November 1, 2033 bond was quoted at 10.50 to 10.55 percent, slightly higher at the upper end compared with previous indications. Dealers said the modest easing in yields reflected selective demand rather than broad-based positioning.
The currency market continues to attract close attention following the rupee’s gradual weakening trend over the past year. From levels around 293.25/75 to the US dollar last year, the rupee has depreciated despite record current account surpluses and notable improvements in fiscal performance. Analysts point out that traditional macroeconomic explanations often cited for currency depreciation do not fully account for recent movements, suggesting that structural and market-driven factors may be playing a larger role.
Telegraphic transfer rates indicated a wide spread across major currencies. The US dollar was quoted at 306.40 buying and 313.40 selling, while the British pound stood at 414.09 buying and 425.45 selling. The euro was quoted at 357.05 buying and 368.41 selling. Dealers said these rates reflect ongoing volatility in global currency markets, as investors respond to shifting interest rate expectations and geopolitical developments.
Equity markets, meanwhile, showed a positive trend during the session. The All Share Price Index on the Colombo Stock Exchange rose by 0.36 percent, gaining 82.18 points to reach 23,096. The more liquid S&P SL20 index climbed 0.54 percent, adding 33.62 points to close at 6,261. Market participants attributed the gains to selective buying in blue-chip stocks and continued optimism around earnings prospects.
Looking ahead, attention is also focused on government debt issuance, with Treasury bills worth Rs. 100,000 million scheduled to be offered at an auction on January 7. Analysts said the auction outcome will provide further signals on liquidity conditions, investor appetite, and short-term interest rate expectations. Demand at the auction could influence both secondary market yields and near-term currency sentiment.
Overall, as the Sri Lanka rupee opens weaker, market participants remain cautious but not alarmed. The combination of a marginally softer currency, easing bond yields, and firmer equities suggests a market environment characterised by selective confidence rather than broad risk aversion. Traders expect the rupee to continue trading within a managed range in the near term, with movements closely tied to liquidity conditions, government borrowing dynamics, and external flows.