Foreign investors extended their streak of buying Sri Lankan government securities for the fifth consecutive week ending September 25, pushing offshore holdings in local bonds to their highest level in two years. The sustained inflows come amid a global surge in appetite for government bonds, according to Central Bank data.
Weekly Investment Surge
International investors purchased a net 334 million rupees ($1.11 million) worth of government securities during the week ending September 25. This latest investment brings total net inflows to 14,041 million rupees ($46.8 million) over the five-week period, demonstrating consistent foreign confidence in Sri Lankan debt instruments.
The positive momentum reflects broader global trends, with government bond funds worldwide experiencing unprecedented demand. According to Reuters, these funds attracted a massive $22.96 billion in weekly net investment – the largest figure recorded since at least 2022. The surge was particularly pronounced in short-term funds, which saw robust inflows of $10.01 billion during the week.
Record Holdings Reached
Foreign holdings in Sri Lanka’s rupee-denominated bonds reached 120.6 billion rupees on September 25, marking their highest level since December 2023. This milestone represents a significant recovery for the island nation’s bond market, which has faced considerable volatility over the past year.
The current investment wave has delivered substantial returns for Sri Lanka’s debt markets. Since December 26 last year through September 25, the country has enjoyed total inflows of approximately 51.3 billion rupees (around $171 million) into rupee bonds, official data revealed.
Overcoming Previous Challenges
The positive trajectory marks a notable turnaround from earlier setbacks. Sri Lanka experienced significant capital flight following former President Trump’s tariff declarations in early April, with foreign investors pulling out 10.1 billion rupees ($32 million) in just two weeks. The rupee has remained somewhat pressured since that period.
The broader context shows the challenging environment Sri Lankan markets navigated in recent years. Throughout 2024, the country witnessed foreign outflows totaling 48.2 billion rupees, with government securities bearing the brunt of the exodus. In the first nine months of 2023, outflows from government securities reached 78.1 billion rupees, representing 66 percent of total foreign departures worth 48.2 billion rupees.
Policy Support Driving Recovery
Analysts attribute the recent investment revival to Sri Lanka’s deflationary policies, which have helped stabilize the economic environment. The government’s approach of curtailing imports has contributed to creating conditions more favorable to foreign investment, experts noted.
The sustained five-week buying streak suggests growing international confidence in Sri Lanka’s economic stabilization efforts and debt management capabilities. As global investors seek yield opportunities amid shifting monetary policies worldwide, Sri Lankan rupee bonds appear increasingly attractive to offshore investors seeking exposure to emerging market debt.
The record-high foreign holdings indicate that international investors view current valuations and yield levels as compelling, despite the broader economic challenges the island nation continues to navigate.
