Foreign investors exit Sri Lanka government bonds in 2018

June 19, 2018 (LBO) – Foreign investors have been dumping Sri Lanka government bonds in 2018, after being big net buyers in 2017.

Year to date, foreign investors have been net sellers of Rs22.5bn (US$140mn) of Sri Lanka government bonds.  This is a reversal from 2017, where foreign investors were net buyers of Rs64.2bn (US$400mn) worth of government bonds.

Yields on local currency denominated debt have remained double digit as the currency (LKR) has started to depreciate, hitting record lows in recent days.

Governor Indrajit Coomaraswamy and the Monetary Board of Sri Lanka have maintained relatively tight monetary policy which has likely prevented a more rapid devaluation of the currency.  The Central Bank also spent US$220mn defending the LKR in the month of May.

Foreign selling in government bonds, stocks, and devaluation of the LKR comes amid the backdrop of the largest YTD exodus from Asian emerging market stocks since 2008.