Buying interest emerges in market as IMF concludes 3rd review of EFF agreement

By First Capital Research

On February 28, 2025, the International Monetary Fund (IMF) announced that its executive board had completed the third review of Sri Lanka’s 48-month Extended Fund Facility (EFF) arrangement, enabling the government to access SDR 254 million (approximately US $ 334.0 million) to support economic policies and reforms. 

Following the announcement, the secondary market yield curve saw buying interest in short to mid tenures, leading to moderate trading volumes and limited market activity. Notable trades were recorded amongst the 2028, 2029, 2030 and 2031 maturities. On the 2028 maturity, 01.05.2028 and 01.07.2028 bonds traded at the rates of 10.10 percent and 10.20 percent, respectively. 

Furthermore, both the 15.06.2029 and 15.09.2029 maturities were traded at the range of 10.62 percent to 10.75 percent. Meanwhile, the 15.10.2030 bond maturity traded between 11.07 percent to 10.98 percent whilst 15.03.2031 traded at 11.35 percent. 

On the external front, the Sri Lankan rupee strengthened and appreciated against the US dollar, closing at Rs.295.4/US dollar compared to Rs.295.5/US dollar recorded the previous day. Similarly, the Sri Lankan rupee also appreciated against other major currencies such as the JPY, and AUD whilst depreciated against the GBP, EUR and CNY. 

The Central Bank holdings of government securities remained unchanged, closing at Rs.2,511.92 billion yesterday. Overnight liquidity in the banking system contracted to Rs.157.0 billion from Rs.172.7 billion recorded the previous day. Furthermore, inflation measured by CCPI remained in the negative territory for the sixth consecutive month, recording a deflation of 4.2 percent in February 2025 compared to the deflation of 4.0 percent in January 2025.