Five-year bonds come out of the closet this week

Sri Lanka’s central bank will issue five-year treasury bonds later this week for the first time since late 2003 to try and extend the yield curve for government securities, a central bank official said Wednesday Sri Lanka’s central bank will issue five-year treasury bonds later this week for the first time since late 2003 to try and extend the yield curve for government securities, a central bank official said Wednesday An official at the public debt department said the bonds will be issued Friday at a coupon rate of 7.6% to meet market demand for longer-term bonds.

“The government may not want to lock in for a long period of time at a high interest rate should interest rates be lower in the future,” the official said.

Secondary bond yields have fallen about 1.5 percentage points after last month’s devastating tsunami on expectations that donor aid inflows will boost reconstruction, making it easier for the central bank to issue bonds with a longer-term maturity.

The bond issue would stimulate trading in longer-term bonds, he said. The central bank currently auctions treasury bills and bonds with a tenure of up to four years.

The official said the public debt department may offer bonds with maturities longer than five years depending on the response to Friday’s auction.

The central bank will also sell four-year bonds Friday. (Dow Jones)