The selloff in Sri Lankan dollar bonds intensified on Monday (Sep 9) as investors reduced their exposure to the country due to rising political uncertainties ahead of elections later this month.
Sri Lanka’s dollar bonds maturing in 2030 fell 3 cents on the dollar to 49.9 cents, the lowest level since February, extending their decline from this year’s peak to about 15%. Bonds due in 2027 dropped more than 1 cent to 49.6 cents.
Market pressures have mounted ahead of the September 21 elections, with investors concerned that a potential leadership change could disrupt stalled debt negotiations. Opposition leaders have indicated they would seek to renegotiate the terms of Sri Lanka’s program with the International Monetary Fund (IMF).
“Sri Lanka will likely need to further refine the terms agreed with bondholders, and this will be challenging before the election,” said Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle Investment. “While I expect volatility to continue, the recent sharp selloff might attract some ‘bargain hunting’ activities.”
Anura Kumara Dissanayake, known as AKD, leads the National People’s Power—a coalition of leftist political parties and groups backed by protesters who ousted the Rajapaksa government in 2022. Campaigning on a platform of clean governance and anti-corruption, Dissanayake has pledged to reopen negotiations with the IMF and opposes the current debt restructuring framework.
Dissanayake has emerged as a key challenger to incumbent President Ranil Wickremesinghe, who remains unpopular due to the austerity measures implemented in exchange for an IMF bailout.
“Investors are adjusting their positions ahead of the election,” said Eric Fang, a fund manager at Eastspring Investments in Singapore. “We believe any major price corrections offer a buying opportunity as the country is on a recovery path and the debt deal is fair for both issuers and investors.”
Source: BLOOMBERG
