Sri Lanka Bonds Set to Gain Most in Asia as Reserve Funds Sought

(Bloomberg) -- Sri Lanka’s volatile dollar bonds are set to jump the most in Asia this month after its central bank unexpectedly raised interest rates earlier in August in a move that may help boost the country’s foreign exchange reserves.

But default concerns remain for the notes, with S&P Global Ratings last week cutting the outlook on its junk CCC+ ratings for the country to negative, citing risks that attempts to boost reserves may fall short of the government’s expectations.

The dollar notes have gained 2.9% in August, the biggest increase across Asia, according to a Bloomberg index. The bonds had been falling for the month until the rate hike on Aug. 19, and they were the worst performers in the previous two months. The debt fell 0.1% on Friday after the S&P move.

Any increase in reserves totaling $2.8 billion at the end of July would help Sri Lanka address debt maturities next year totaling $1.5 billion. The nation has already used a part of that stockpile to repay $1 billion of bonds last month. 

©2021 Bloomberg L.P.