Yields of a bond maturing in 15.04.2012 fell to 10.50/55 percent from 10.75/85 a day earlier, while yields of 3-year bond maturing on 01.02.2013 fell to 10.78/82 levels from 10.98/99 levels yesterday, dealers said.

A fall in the yield pushes up the price of the bonds giving a capital gain to the holder.

The government's debt office, which is a unit of the Central Bank has asked banks to find buyers for about 2.5 billion rupees of bonds from or sell from their own portfolios and buy a similar quantity from the government.

In February at least one foreign investor bought a similar quantity of bonds directly from the debt office at a price below the secondary market rate.

But other foreign investors were not willing to buy at below the secondary market rate as there would be an immediate mark-to-market loss, despite the high yields on Sri Lankan bonds, bankers said.

Foreign banks have found buyers more than a billion US dollars in to Sri Lanka government Treasuries since mid-2009.

Sri Lanka is also offering to sell 100 million US dollars of dollar denominated two and three year bonds this week targeting largely domestic buyers.

Last year Sri Lanka's budget deficit is estimated to have topped 10.3 percent of gross domestic product leading to the suspension of a deal with the International Monetary Fund.

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