Sri Lanka US$1.5bn dollar sovereign bond nod likely next week

COLOMBO (EconomyNext) – Sri Lanka’s cabinet of minister will consider the sale of a 1.5 billion US dollar sovereign bond next week, Finance Minister Ravi Karunanayake said.

The timing of the sale will be decided on market conditions, he said.

Sri Lanka did not roll-over a maturing sovereign bond in January, which was repaid with foreign reserves, at a time when domestic credit growth was already picking up.

Sri Lanka is also seeking an enhanced loan from the International Monetary Fund to boost reserves, which was cheaper than market borrowings.

Federal Reserve Bank of Richmond Jeffrey Lacker said last week that raising rates in June was an "attractive option" for him.

Sri Lanka’s sovereign bonds are benchmarked to 5 and 10 year US Treasuries and there is a strong likelihood that the US will raise interest rates in June.

A strong jobs report has also boosted chances of a rate hike.

The US 10-year yield topped 2 percent this week ahead of a rate hike.

In times of global currency volatility when central banks sell US dollar bonds in their foreign reserves, US Treasuries yields also tends to spike.

The US economy has recovered faster than Europe, despite many state interventions creating uncertainty.

The Fed itself has fired inflation into an already depressed economy with extra loose policy, undermining spending power of the people, which may have delayed a recovery, critics say.

In the US, despite higher oil prices coming from quantity easing, less tight regulation allowed private firms to deploy technologies such as ‘fracking’, pushing natural gas prices lower, helping the economy recover faster.

Europe, which is more tightly regulated has lagged behind.  Banks have also faced tighter capital rules which discourage lending. In the US while money was printed in a bid to boost lending, banks were also constrained by the Frank-Dodd act, which may have delayed a recovery.

Despite state interventions, the US also has a generally lower revenue to gross domestic product ratio, indicating lower state discretion and interference and more freedom for people to spend money where they thought best.