Sri Lanka's rupee appreciated against the US dollar this week while government bond yields fell across most maturities, signalling improved market sentiment in the domestic fixed income sector.
Sri Lanka's rupee closed trading on Friday at 327.98 to 328.04 against the US dollar, representing a notable strengthening from the previous Tuesday's closing range of 328.50 to 328.60, according to market dealers. The currency movement reflects modest positive momentum in the spot market over the trading week.
Government bond yields showed a broader weakening trend across the yield curve. Bonds maturing in 2028 declined to 9.90 to 10.00 percent from 10.00 to 10.10 percent, while longer-dated securities also retreated. The 2029 maturity fell to 10.25 to 10.30 percent from 10.35 to 10.45 percent, and the 2030 bond moved to 10.50 to 10.55 percent from 10.55 to 10.62 percent. Further down the curve, the 2032 bond closed at 10.95 to 11.05 percent, down from 11.15 to 11.25 percent.
The decline continued into the longer end of the market, with the 2034 maturity at 11.50 to 11.55 percent compared to its previous 11.55 to 11.60 percent, and the 2036 bond closing at 11.77 to 11.80 percent from 11.85 to 11.90 percent. The 2037 security similarly declined to 11.80 to 11.92 percent from 11.85 to 11.95 percent. A minor exception appeared in the 2031 bond, which remained essentially flat at 10.62 to 10.67 percent.
The concurrent strengthening of the rupee and decline in bond yields may suggest improving confidence in Sri Lanka's economic conditions and debt sustainability prospects among market participants.
