Foreign holding in rupee Treasuries breaks Rs. 170 b mark

• Secondary Bond market yields pick up
• Primary auctions see mixed results; all maturities sold
• Money market liquidity continues to increase

By Wealth Trust Securities

Foreign investment in rupee-denominated Government securities recorded a strong weekly inflow of Rs. 7.67 billion for the week ending 16 July. This lifted foreign holdings to a three-year high of Rs. 176.56 billion—the highest level since July 2023—and marked the sixth consecutive week of net inflows. 

The recent resurgence in foreign demand has now more than reversed the previous decline following the outbreak of the Middle East conflict, completing a sharp V-shaped recovery.

The secondary Bond market saw yields adjust upward last week, initially reflecting the Treasury Bond auction outcome and subsequently responding to renewed geopolitical tensions in the Middle East and firmer global oil prices. However, institutional buying interest emerged at the elevated yield levels, providing support and prompting some compression from intraweek highs.

Towards the end of the week, yields largely consolidated at the prevailing levels, although selected tenors saw some further upward adjustment. Renewed demand at the elevated levels continued to underpin the market. Secondary market two-way quotes closed higher on a week-on-week basis, while overall activity and transaction volumes continued to remain at healthy levels.

In the secondary Bond market, the 15.02.28, 15.03.28 and 15.12.28 maturities changed hands at the yields of 10.53%, 10.55% and 10.70% respectively.

In the 2030 space, the 01.03.30 maturity traded within the range of 11.25%–11.33%, while the 01.07.30 maturity traded at the rate of 11.50%. The 01.08.30 maturity traded within the range of 11.50%–11.55%, while the 15.10.30 maturity traded within the range of 11.50%–11.65%.

Further along the curve, the 01.11.33 maturity traded up to the range of 11.90%–12.10%. The 15.06.34 maturity traded at 12.00%, while the 15.10.34 maturity traded up to the range of 12.00%–12.10%.

At the longer end, the 01.07.37 maturity traded within the range of 12.58%–12.65%.

To recap: At the Treasury Bond auctions held at the start of last week (last Monday), the full offered amount of Rs. 150 billion was raised during phase I of competitive bidding. The bids-received-to-accepted ratio stood at 2.42 times. Weighted average yields came in above pre-auction secondary market levels.

Maturity-wise results were as follows:

• 15.10.2030: Issued at a weighted average yield of 11.57%, compared with pre-auction secondary market quotes of 11.47%–11.50%.
• 15.10.2034: The new maturity was issued at a weighted average yield of 12.04%, above that of the comparable 15.06.2034 maturity, which was quoted at 11.80%–11.90%.
• 01.07.2037: Issued at a weighted average yield of 12.58%, compared with quotes of 11.80%/12.00% on the comparable 15.08.2036 maturity.

Further to the Treasury Bond auction held on 13 July 2026, Rs. 15 billion was raised via the Direct Issuance Window from the Treasury Bonds at the respective weighted average yield yields determined at the auction, out of a total market subscription of Rs. 15.155 billion.

Conversely, at the weekly Treasury Bill auction held last Wednesday, weighted average yields declined across all three tenors for the first time in four weeks. Accordingly, the yield on the 91-day tenor fell by 8 basis points to 10.13%, while the 182-day and 364-day yields declined by 3 basis points and 1 basis point to 10.27% and 10.20%, respectively.

The auction successfully raised the full offered amount of Rs. 120 billion during phase I of competitive bidding, with the accepted amount for each maturity exactly matching its respective offer. A further Rs. 12 billion—the maximum amount available—was raised during Phase II at the auction-determined yields, against total market subscriptions of Rs. 123.09 billion.

In the money market, the total outstanding liquidity surplus stood at Rs. 167.97 billion at the end of the week, as against its previous week’s Rs. 116.72 billion. The weighted average interest rates on Call Money and Repo eased to 8.95% and 9.00% respectively at the close of the week as against the previous week’s closing levels of 9.01% and 9.05%.

Forex market

The USD/LKR rate on spot contracts closed the week depreciating to Rs. 336.15/336.30 as against its previous week’s closing of Rs. 335.70/335.85. Intraweek, the rupee strengthened to highest levels of Rs. 334.70 and depreciated to a low of Rs.336.40.

The daily USD/LKR average traded volume for the first four trading days of the week stood at $ 62.07 million.

(References: Public Debt Management Office - Ministry of Finance, Central Bank of Sri Lanka, Bloomberg E-Bond Trading Platform, Money Broking Companies)