COLOMBO (EconomyNext) – Sri Lanka’s bond yields rose across maturities with strong foreign selling in 8-year bonds, with the rupee steady at 134.00 to the US dollar with intervention, dealers said.
Foreigner were seen selling mainly 8-year bonds maturing on 01.09.2023. Foreign selling drove the 8-year yield as high as 9.00 percent in intra-day trading before easing back to 8.90/95 levels, up from 8.78/85 percent.
Yields on other maturities also rose around 05 to 10 basis points, dealers said.
But some foreign names were buying three month bills, indicating that not all the bond sales would move out of the country immediately, dealers said. The move also helped reduce pressure on the bill market.
Sri Lanka ratcheted up state salaries and subsidies in 2015 and cut policy rates while releasing large volumes of liquidity to interbank markets to keep rates down in a classic demonstration of the ‘monetary policy trilemma’, generating pressure on the currency.
Sri Lanka has a so-called soft-pegged Central Bank which gets into frequent balance of payments troubles by trying to simultaneously control both interest and exchange rates.
Some foreign investors in bonds started selling out about four weeks ago, extending to the capital account, a problem that began in the current account with low interest rates, excessive state consumption and state credit.
A summary of bond yield increases seen on Wednesday are given below.
2-year bonds maturing on 15.05.2017 – 6.80/7.00 percent up from 6.80/90 yesterday
3-year bonds maturing on 01.06.2018 – 7.65/70 percent up from yesterday’s 7.55/65
4-yuear bonds maturing on 15.09.19 – 8.04/06 percent up from yesterday’s 7.95/8.00
5-year bonds maturing on 01.05.20 – 8.20/25 percent up from yesterday’s 15/20
6-year bonds maturing on 01.08.2021 – 8.60/70 percent up from yesterday’s 8.48/55
7-year bonds maturing on 01.07.22 – 8.70/75 percent up from yesterday’s 8.55/65
8-year bonds maturing on 01.09.2023 – 8.90/95 percent up from yesterday’s 8.78/85
9-year bonds maturing on 01.01.2024 – 8.95/9.00 percent up from yesterday’s 8.85/90
10-year bonds maturing on 15.03.25 – 9.00/10 percent up from yesterday’s 8.90/98
15-year bonds maturing on 15.05.2040 – 9.20/40 percent up from yesterday’s 9.20/20
20-year bonds maturing on 15.03.35 – 9.40/60 percent flat from yesterday’s 9.40/60
30-year bonds maturing on 01.03.45 – 10.30/50 percent flat from yesterday’s 10.30/60
Correction – yeilds rose 05 to 10 basis points.