On Monday, September 9, 2024, Sri Lankan dollar bonds experienced a sharp sell-off, which may attract bargain hunters as investors reassess their positions ahead of the upcoming presidential elections, market experts suggest.
According to Bloomberg, the decline in Sri Lankan dollar bonds intensified as investors reduced their exposure due to rising political uncertainties ahead of elections later this month. The country’s bonds due in 2030 fell three cents to 49.9 cents on the dollar, marking their lowest level since February and extending their year-to-date decline to about 15%. Bonds maturing in 2027 dropped more than one cent to 49.6 cents.
Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle Investment, indicated that while the volatility is expected to persist, the significant sell-off could attract bargain hunters. He noted that Sri Lanka might need to further refine the terms of its bondholder agreements, which could be challenging before the election.
Purvi Harlalka, a senior emerging markets sovereign debt strategist at M&G, highlighted that the weakness in Sri Lankan bonds reflects heightened uncertainty surrounding the election outcomes and the restructuring timeline. A potential victory for the National People’s Power (NPP) could significantly delay the timeline beyond market expectations.
Eric Fang, Fund Manager at Eastspring Investments in Singapore, shared that investors are adjusting their positions in light of the election. He sees the current price correction as an opportunity to buy, believing that the sovereign’s recovery path and debt deal present a fair outcome for both the issuer and investors.