Bond Market Bull Run: Rates Nosedive on Fiscal Surplus & Global Cues 📈

Sri Lanka’s secondary bond market recorded a strong rally last week, driven by a global decline in crude oil prices and robust domestic fiscal consolidation. • Macroeconomic Drivers: Domestically, investor confidence was heavily boosted by a Government budget surplus of Rs. 105 Bn during January–April 2026, marking a significant turnaround from the Rs. 261.6 Bn deficit recorded in the same period of 2025. • Treasury Yields & Auction: Aggressive buying pushed yields sharply lower across the curve. At the weekly auction, Treasury Bill rates dropped for the first time in 5 weeks, correcting the yield curve inversion. - 91-day T-Bill: Decreased by 7 bps to 10.02% - 182-day T-Bill: Decreased by 11 bps to 10.16% - 364-day T-Bill: Unchanged at 10.16% - The auction fully raised the offered Rs. 70 Bn, with bids oversubscribed by 1.85 times. • Market Segments: - Secondary Bonds: 2026 maturities hit lows of 10.05%, 2028 spaces fell from 11.00% to lows of 10.60%, while longer-end 2035 maturities fell to 11.75%. - Foreign Holdings: Increased marginally by Rs. 2 Mn to a total of Rs. 121.35 Bn for the week ended June 18. - Money Market: Total outstanding liquidity surplus fell to Rs. 31.25 Bn (from Rs. 62.57 Bn). Call Money and Repo rates closed at 9.22% and 9.24%. • Forex & Volumes: The USD/LKR spot contract appreciated, closing stronger at Rs. 333.85/334.25 compared to the previous week's close of Rs. 335.50/336.00. The daily average USD/LKR traded volume stood at US$ 86.00 Mn for the first four trading days.