📈 Secondary Bond Market Stabilizes Amid Improving Fiscal Fundamentals

Sri Lanka’s secondary bond market entered a consolidation phase last week, with yields holding steady as strong domestic fiscal performance offset geopolitical risks. • Market Sentiment & Liquidity: Sustained surplus liquidity in the money market crossed the Rs. 200 Bn mark, ending the week at Rs. 218.70 Bn. This increased liquidity helped maintain stability in short-end rates despite external pressures from Middle East tensions and crude oil prices. • Treasury Bill Auction Highlights: The weekly T-Bill auction saw a correction in the yield curve as the 91-day Bill yield dropped by 7 basis points (bps) to 8.20%. 182-day: 8.25% (+2 bps) 364-day: 8.52% (Unchanged) The auction was slightly undersubscribed, raising Rs. 136.94 Bn against an offered Rs. 140 Bn. • Key Yield Movements: Short-term: 2026 maturities traded between 8.15% - 8.40%. Medium-term: 2030-2031 tenors held between 10.18% - 10.25%. Long-term: 2034-2037 maturities traded between 11.15% - 11.25%. • Economic Indicators: Inflation: April CCPI accelerated to +5.40% YoY (from +2.20% in March), remaining within the CBSL target band. Foreign Holdings: Stabilized at Rs. 144.20 Bn after two weeks of inflows. Forex: The LKR depreciated slightly against the US Dollar, closing at Rs. 319.75/320.00. • Fiscal Note: Strong performance in January 2026 saw a sharp expansion in the primary surplus and the near-elimination of the overall budget deficit, providing a robust anchor for the financial services and banking sectors.