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Sovereign bonds and currency: Sri Lanka, Pakistan face 'toughest trade'
Though the ongoing conflict in the Middle East is yet to show a significant impact on global projected growth, frontier markets like Sri Lanka face a challenging trading environment as they navigate an uncertain transition between inflationary shock and demand destruction, said PIMCO Emerging Market Portfolio Manager Yacov Arnopolin, speaking to Bloomberg television on Friday (20)."What is probably not reflected yet is likely the hit to growth and potential demand destruction," Arnopolin said, commenting on the lack of substantial signs of the impact globally, in the long-term. "With that in mind, we are starting to see value in the long ends of curves in Brazil, South Africa and the Czech Republic," he said, noting that the market price of assets in these nations have over-discounted the negative impact, making them attractive for investment.Meanwhile, he noted that emerging markets in Asia, particularly frontier markets like Sri Lanka and Pakistan, face a different reality when it comes to trading sovereign bonds and currencies."That is the toughest thing to trade in an environment where you have this uncertainty and we don't know how long this situation will last. The toughest thing to trade is a handover from the inflationary shock to demand destruction," he noted.Sri Lanka's rupee traded at 311.50/80 against the US dollar on Friday, edging weaker from previous sessions as demand for dollars persisted. The currency has depreciated approximately 5.2 % over the past year, though it remains stronger than it was during the 2022 crisis low, when it reached 372/dollar.Short-term Treasury Bill rates stood at 7.61 % for 91-day bills and 7.91 % for 182-day bills in mid-March, while longer-dated bonds traded at significantly higher yields, the 10-year yield at 10.82 % and the 15-year yield at 11.07 %.Arnopolin explained that markets have already adjusted to expectations of higher interest rates, as short-term yields have spiked and traders have begun pricing in more central bank hikes. In Sri Lanka’s secondary bond market, yields initially spiked as Brent crude briefly touched $ 120 per barrel, then reversed as oil prices abated. Foreign holdings of Sri Lankan government securities recorded a net outflow of Rs. 4.50 billion during the week which ended 12 March."The curves have been flattened, we have priced in more hikes. In our view more hikes are likely to take place, or are justified because we are seeing demand destruction, we are seeing this in Asia as well...
Central Bank of Sri Lanka
Money Market Summary Date Call Market Repo Market Minimum Rate(%) Maximum Rate(%) W.A yield (%) Gross Volume(Rs.Bn) Minimum Rate(%) Maximum Rate(%) W.A yield (%) Gross Volume(Rs.Bn)
Sri Lanka Rupee and Bonds Update - 07 Apr 2026
Sri Lanka rupee flat, bond yields steady as currency markets and government securities reflected a broadly stable trading session, with only marginal movements recorded across key financial indicators.
Sri Lanka Rupee and Bonds Update - 06 Apr 2026
The Sri Lanka rupee holds steady, bond yields flat development also reflects the impact of earlier monetary easing measures. Since mid-2023, the Central Bank has gradually reduced policy rates, contributing to lower borrowing costs and improved liquidity in the financial system.
