Foreigners show renewed optimism in Sri Lankan gilts

The foreign investors were adding Sri Lankan government securities into their holdings in the last couple of weeks, reversing a recent sell off seen in the middle of January.
According to the data, the foreigners had added Rs.5,470 million worth of treasury bills and bonds in the last two weeks, at Rs.3,636 million and Rs.1,834 million, respectively, bringing the total foreign holdings of rupee treasuries to Rs.114,413 million.

For the year however, they had unloaded Rs.3,028 million worth of rupee treasuries.  
However, this was far below the Rs.188,984 million worth of rupee treasuries held by the foreigners by end-June, when the approval of the International Monetary Fund’s four-year economic stabilisation programme in March last year sparked a buying spree by the foreigners into rupee bonds.
However, since then, foreigners had continued to unload their treasury holdings, except in a couple of instances during the final seven months of last year, as the year ended with foreign holdings of government securities of Rs.117,441 million.

However, for the full year, the foreigners added Rs.91,869 million worth of rupee bonds into their holdings, which had a dollar equivalent of 210 million, in spite of a net outflow of US $ 23 million in December.
Despite being small, the reversal in the foreign interest in the rupee bonds was also one of the reasons for the positive balance of payment in 2023 and also the ability of the Central Bank to recoup the foreign reserves it lost.
The interest rates in both US treasuries and rupee treasuries are coming down, with the expectations of easing monetary policies in both economies, due to the confidence of them having successfully vanquished red-hot inflation in their respective economies.
However, the Sri Lankan treasuries still offer significantly higher premium to that of the US treasuries. Yet, the risk/return profile diverged significantly between the two economies for the investors.