Rupee Remains Steady as Bond Yields Edge Up and Markets Dip

By: _Isuru Parakrama_

June 19, Colombo (LNW): The Sri Lankan rupee happens to have maintained relative stability against the US dollar on Thursday (19), opening at 300.50/70 in the spot currency market, nearly unchanged from the previous day’s close of 300.40/60, according to currency traders.

Despite the steadiness in the exchange rate, financial markets saw upward pressure on sovereign bond yields, especially across mid- to long-term maturities, indicating shifts in investor sentiment and inflation expectations.

Government securities showed a modest rise in yields, suggesting a cautious mood among market participants. A bond maturing on 15 December 2026 was quoted at 8.15 to 8.25 per cent, marking a slight uptick from the earlier range of 8.14 to 8.20 per cent.

Meanwhile, the yield on the 15 September 2027 bond inched upward, quoted at 8.50 to 8.60 per cent.

Longer-dated securities also reflected the rising yield trend. The 15 October 2028 bond remained steady at 8.90 to 9.00 percent, whilst the 15 December 2029 bond saw a more notable climb to 9.62 to 9.67 percent, compared to the previous 9.52 to 9.56 per cent range.

The 15 March 2031 issue moved up to 10.05 to 10.20 per cent, indicating heightened risk premiums on longer maturities.

The 15 December 2032 bond closed at 10.35 to 10.40 per cent, modestly up from Wednesday’s 10.31 to 10.38 per cent quotes.

Analysts attribute the rise in yields to ongoing fiscal and monetary adjustments, as well as broader concerns about global interest rate trends and domestic refinancing challenges.

In equities, the Colombo Stock Exchange (CSE) saw a downward trend, reflecting subdued investor confidence and cautious positioning. Whilst the rupee’s firmness suggests a measure of external sector stability—likely supported by remittance flows, tourism revenue, and improved trade balances—the simultaneous rise in bond yields underscores underlying apprehensions about inflationary pressures and debt sustainability.

Insiders told LNW that market observers are also keeping a close watch on the Central Bank’s monetary policy signals and potential fiscal developments that could influence investor appetite for rupee-denominated assets.

Amid these dynamics, financial stakeholders are navigating a complex terrain shaped by both domestic reform efforts and global financial volatility.