Sri Lanka’s dollar bond market once battered by default and investor flight appears to be regaining traction, with the Ceylon Dollar Bond Fund (CDBF) posting an impressive 12.3 percent U.S. dollar return year-to-date as of mid-September 2025.
Managed by Ceylon Asset Management (CAM) and backed by Deutsche Bank as its Trustee and Custodian, the fund’s performance underscores a measured comeback in investor confidence toward the country’s restructured debt, a high official of the Sri Lanka Insurance Corporation (SLIC), a stake holder of the fund revealed.
CDBF, an open-ended fund regulated by the Securities and Exchange Commission of Sri Lanka (SEC), invests exclusively in Sri Lankan International Sovereign Bonds (ISBs) and selected bank-guaranteed dollar securities listed on global exchanges.
It shields investors from rupee currency risk while allowing capital and income repatriation in foreign currencywhile .the social media is being carried out an extensive promotion campaign to lure investors.
CAM attributes the surge in returns to the rally in ISB prices following Sri Lanka’s successful debt restructuring in December 2024 and improving macroeconomic indicators.
“Sri Lanka’s macroeconomic stability has supported the fund’s strong performance,” said CAM Managing Director Dulindra Fernando, noting that rebuilding foreign reserves to US$ 6.2 billion, easing inflation, and stabilizing the rupee have restored investor optimism.
Foreign inflows from tourism, remittances, and FDIs have further bolstered sentiment, while the Central Bank’s effective policy management has guided the economy out of default.
The Central Bank Governor Dr. Nandalal Weerasinghe recently said Sri Lanka could see its sovereign rating upgraded from ‘CCC+’ to ‘B-’ by 2027, a milestone that could open the door to fresh capital inflows.
Over the past ten months, CDBF’s net asset value (NAV) has steadily appreciated, tracking the strengthening of restructured ISBs.
Market analysts note that the average yield on Sri Lankan sovereign bonds has narrowed from 15 percent in January to around 10 percent by October, reflecting reduced default risk.
According to Deutsche Bank, which safeguards the fund’s foreign assets, “the recovery in sovereign bonds has mirrored Sri Lanka’s improving fiscal discipline and investor confidence.”
Meanwhile, Sri Lanka Insurance Corporation (SLIC) a key shareholder in CAM acknowledged that the fund’s performance demonstrates “the potential for disciplined investment in restructured sovereign assets,” though it stressed the need for continuous regulatory vigilance to ensure investor protection.
According to Verité Research, the new GDP-linked Macro Linked Bonds (MLBs) could yield up to 10.3percent per annum if the country’s GDP growth surpasses 3 percent between 2025 and 2027. Analysts at Standard Chartered Bank assign a 67.5percent probability of meeting this growth-linked threshold, reinforcing the upside potential for investors in CDBF.
Hitherto, the Central Bank of Sri Lanka (CBSL) remains cautious. While acknowledging such funds’ role in attracting foreign capital, it maintains that its duty lies in ensuring systemic stability, not endorsing individual funds.
It emphasised that Personal and Business Foreign Currency Accounts cannot be directly invested in CDBF and that banks have been instructed accordingly.
But regulators caution that just because it is marketed so heavily to the Sri Lankan diaspora and South Asian investors does not mean dollar bond funds do not carry risk: returns can be affected by a rise in global interest rates, increased market volatility, or geopolitical changes.
For many investors, however, CDBF represents a symbol of Sri Lanka’s gradual return to international financial respectability.
As one Deutsche Bank analyst summarized, “The numbers tell a story not of exuberance, but of cautious recovery. The Ceylon Dollar Bond Fund’s success mirrors Sri Lanka’s own attempt to rebuild trust, dollar by dollar.
