Middle East Tensions Drive Up Domestic Yields & Weaken Rupee 📈

Sri Lanka’s secondary bond market closed higher last week as geopolitical volatility and rising oil prices (peaking at US$ 115) fueled inflation concerns. Market sentiment remained cautious following mixed signals regarding the Iran-U.S. conflict. • Overall Bond Market: Yields across the curve shifted upward. Short-term maturities like the 2027s traded between 8.85%–8.90%, while long-term 2035 tenors reached 11.00%. • Treasury Bill Auction: Weighted averages rose for the second week. The 91-day bill increased by 16 bps to 7.80%, while the 364-day bill rose to 8.41%. The auction was significantly undersubscribed, raising only 36.11% (Rs. 32.50 Bn) of its Rs. 90 Bn target. • Foreign Outflows: Rupee-denominated Government securities saw a net outflow of Rs. 4.98 Bn, marking the fifth consecutive week of foreign exits. Total foreign holdings dropped to Rs. 143.62 Bn. • Liquidity & Forex: Inter-bank liquidity surplus fell to Rs. 247.36 Bn from Rs. 288.31 Bn. The Sri Lankan Rupee (LKR) depreciated against the USD, closing the week at Rs. 315.35/40 compared to the previous week's Rs. 314.70/315.00. _Note: Data based on weekly market performance ending April 2, 2026._