Foreign Investment in SL Gov Bonds Reaches Two-Year High Amid Global Bond Rally
In the latest reporting week, foreign investors made a net purchase of Rs. 334 million (approximately US$ 1.11 million), pushing the total net inflow over the past five weeks to Rs. 14.04 billion (around US$ 46.8 million). This marks the strongest foreign participation in the country’s bond market in two years, with total foreign holdings reaching Rs. 120.6 billion as of September 25—the highest level since December 2023.
The surge in demand coincides with a global appetite for government bonds. Citing figures from Reuters, international bond markets recorded a staggering US$ 22.96 billion in net inflows within a single week, the largest since at least 2022. Of this, US$ 10.01 billion was directed into short-term government bond funds, highlighting a shift towards safer assets amid ongoing global uncertainties.
Sri Lanka’s performance in this context is particularly notable given its economic challenges in recent years. Since 26th December last year, the country has attracted a cumulative Rs. 51.3 billion (approximately US$ 171 million) in foreign investment into rupee-denominated bonds.
Analysts attribute the recent inflows to the government’s continued implementation of deflationary policies, aimed at stabilising the currency and reducing import pressures. These measures appear to have improved investor confidence, even as the rupee has experienced slight depreciation following geopolitical developments earlier this year—most notably, after tariff declarations in April that triggered an Rs. 10.1 billion (US$ 32 million) outflow in just two weeks.
Despite this positive trend, Sri Lanka’s broader capital flow picture remains mixed. In 2024 alone, the country experienced foreign outflows amounting to Rs. 48.2 billion, although this is an improvement from 2023, when 78.1 billion rupees—around 66 per cent of all capital flight—was recorded from government securities in the first nine months.
With global investors continuing to seek out stable, higher-yielding government debt, Sri Lanka’s bond market may remain a beneficiary—provided macroeconomic stability is maintained and fiscal reforms continue on track.
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