Sovereign bond yields moderate as investors look past pandemic

• Yields of majority of SL’s ISBs seen moderating as investors re-evaluate their positions
• Yields of six ISBs increase including the one maturing on July 27, 2021

The yields of international sovereign bonds (ISBs) issued by Sri Lanka continue to moderate as investors appear to be re-evaluating their overreaction to the resurgence of COVID-19 and are now beginning to look past the market turmoil brought in by the pandemic. 

According to the data available up to last week, sovereign bond yields across large number of bonds fell indicating that investors appreciate how the country’s authorities navigate the pandemic induced economic shocks and are growing more confident of the country’s medium-term economic growth and stabilization agenda. 

Bond yields and prices are inversely related as prices increase when yields decline. 

The bond maturing on January 18, 2022 was trading at 25.01 percent last week, declining from 29.02 percent in the week earlier. 

Similarly bonds maturing on July 25, 2022 saw its yield declining from 31.23 percent to 30.88 percent while another maturing on April 18, 2022 saw its yield declining from 27.25 percent to 20.04 percent. 

Meanwhile, the bond maturing on March 14, 2024 saw its yields declining the most from 25.46 percent to 17.49 percent. 

Few weeks ago, ICRA Lanka said investors were seen re-evaluating their positions after their initial overreaction to the virus resurgence in October. 

Meanwhile, those foreigners who overreacted to the sovereign rating downgrades suffered losses by selling them at significant discounts while another section of investors, including locals, made substantial gains on both the October bond as well as the coming July bond.

“Domestic banks and institutions benefited from the global sell-off of the SL-ISBs and now hold c.40 percent of the ISB stock of US$ 2.5 billion maturing in 2021e & 2022e. SLDB’s (2021 & 2022), with a total face value of US$ 2 billion is also c. 70 percent held domestically,” said Nation Lanka Equities in a report on the Sri Lankan economy recently.

Sri Lanka has 13 outstanding sovereign bonds with a total value of US$ 14.5 billion falling due up to March 2030, which works out to under US$ 1.5 billion per annum. 

For the first 10 months of the year, Sri Lanka has narrowed its merchandise trade deficit by US$ 1.6 billion. 

Meanwhile, the yields rose in six bonds out of the thirteen including the one maturing on the earliest on July 27, 2021. 

That bond was trading at 29.88 percent last week, slightly up from 29.13 percent.