Sri Lanka NSB bond gains, yields plunge in aftermarket

Sept 30, 2013 (LBO) – A bond sold by state-run National Savings Bank at 8.875 this month percent surged in the aftermarket to yield as low as 8.05 percent, giving quick capital gains to investors. NSB sold 750 million US dollars of five year bonds amid unsettled market conditions ahead of a US Fed decision to end excessive money printing operations, which had created bubble-like conditions for emerging market debt.

The bond sale was initially delayed as the Fed was expected to ‘taper’ or start ending its unprecedented printing efforts, as well as fears over US attacks on Syria.

The Fed eventually decided to not to start ending its excessive money printing operations this month, but analysts say it is only a matter of time.

The yields on the NSB bond then started to fall sharply, raising questions over the pricing and timing.

The 8.875 percent bond traded at 8.4 percent on September 16 and fell to 8.05 percent levels by September 26, data from Bloomberg newswires show.

When the bond yield falls, the price of the bond rises, giving a capital gain to the seller. At 8.05 percent at 103.34 to giving a 3.40 dollar capital gain for every 100 dollars.

On Monday there were quotes at 7.8/8.1 percent levels for the bond.

Sri Lanka’s NDB and DFCC Banks had just completed a road show to raise 250 million US dollars each, but investment banking sources say they will find it difficult to better NSB’s rate.

Bond markets may still demand over 9.0 percent from them considering that they are going to market the first time. NSB is viewed as almost-sovereign but it was also a first time sale.

State-run Bank of Ceylon has gone to the market several times at lower rates.