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Sri Lanka sovereign bond yield reversal ends after rate cut

ECONOMYNEXT – Yields on Sri Lanka’s sovereign bonds which fell sharply from record lows after Treasury Secretary S R Attygalle said the government would keep the country’s zero-default record repaying out of reserves if necessary, but the recovery has paused, dealers said.

Bloomberg Newswires data show a dramatic recovery in the closest International Sovereign Bond maturity in October 2020 over the last week, until the central bank cut rate.

The bid yield on the 6.25 percent 2020 October bond fell from around 100 percent before the Treasury Secretary’s comments to around 60 percent until the rate cut.

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But the central bank cut rates on April 03 amid currency trouble. Multiple shocks have also been delivered the sof-pegged credit system imitating the actions of free floating reserve currencies.

The rupee also fell to a record low in forward markets. There is no activity in the spot market.

Yields on the 2020 bond have since picked up to 66 percent, dealers said.

When the yield goes up, the price of the bond falls.

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The bid price of the 6.25 percent 2020 October bond fell from about 100 to about 68 cents to the dollar (a 31 percent discount to par) until the Treasury assurance.

The price then recovered to 81 (about 19 percent below par) until the rate cut and has since fallen to about 78. (Colombo/Apr06/2020)

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