Foreign holdings in Sri Lanka rupee bonds grow
ECONOMYNEXT- Foreign holdings in Sri Lankan rupee bonds grew by 2.3 billion rupees to 147.1 billion rupees for the week ended June 26, the central bank said.
Foreign investors have been net sellers in rupee bonds so far in 2019, with holdings falling from 157 billion rupees on January 02 after interest rates fell, allowing them to take profits.
There have been some weeks where foreigners bought rupee bonds, including the week ended June 19 when there was a marginal increase in the total.
Bond yields in the secondary market fell around 20-30 basis points during the week ended June 26 on buying interest.
Rates plunged at a bill auction on Wednesday.
On Monday, the state raised 2 billion US dollars through an international sovereign bond for budgetary support, with over three times oversubscription.
While the rates had fallen compared to a similar issuance in March, the spread between Sri Lankan sovereign bonds and US Fed bonds had widened between March and June.
Dealers said that the dovish US Fed and an anticipated rate cut at the next Fed meeting in July has increased expectations of funds flowing into emerging markets such as Sri Lanka.
In 2018, as the central bank printed money to enforce a rate cut just as the economy recovered, generating monetary instability and foreign investors fled.
Over 2018 foreign investor holdings in rupee bonds fell from 321.9 billion rupees to 157.8 billion rupees.
Sri Lanka has a soft-peg which is an external anchor that breaks primarily due to the operation of dual anchors, where money is printed as soon as inflation falls, effectively targeting a domestic anchor. (Colombo/Jun28/2019)