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Sri Lankan rupee trades weaker ahead of sovereign bond sale

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July 11 (Reuters) - The Sri Lankan rupee fell as importers and banks bought dollars, speculating that foreign holders of the country's sovereign debt might sell them in order to invest in the higher-yielding dollar bonds the government launched on Monday, dealers said. The new dual-tranche dollar bond float, which could result in some foreign investors exiting their positions on older government securities, comes with a 5.5-year tranche indicating a yield guidance in the area of 6.125 percent and a 10-year at about 7.

125 percent. The sovereign bonds could raise up to $1.5 billion, three sources close to the deal told Reuters on Monday, as book building began. The Sri Lankan rupee one-week forwards, which have been acting as a proxy for the spot rupee, were trading at 146.10/30 per dollar at 0550 GMT, weaker than Friday's close of 146.

00/10. "The demand is there and the investors are waiting to see the outcome of the sovereign bond (issuance). If the rates are higher, we might see some foreigners holding on to local bonds shifting to the sovereign bond," said a currency dealer, asking not to be named. The spot rupee is tightly managed by the central bank and market participants use the forward market levels for guidance on the currency. Dealers said the central bank did not intervene in the foreign exchange market for the fifth straight session on Monday. Last week, central bank governor Indrajith Coomaraswamy said the monetary authority would manage exchange rate flexibly and not have too much volatility. Nandalal Weerasinghe, the central bank deputy governor, also said last week that the level of central bank intervention had come down drastically and that it had been absorbing dollars instead of selling. The spot rupee was not quoted, nor was the spot-next, which are rupee forwards settled three days after the spot rupee settlement, dealers said. The Sri Lankan stock index was up 0.14 percent at 6,375.44 as of 0622 GMT, on a turnover of 224.4 million rupees ($1.54 million). ($1 = 145.5000 Sri Lankan rupees)
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