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Sri Lanka bonds fall after central bank scraps buyback plan; shares end lower

LONDON, Oct 11 (Reuters) – Sri Lanka’s government bonds suffered their biggest drop in nearly seven weeks on Monday after the central bank scrapped a plan to buy back a chunk of the country’s debt on the cheap after default fears pounded prices.

The country’s January 2022 and July 2022 issues shed 2 cents in the dollar, their biggest drop since late August. It left them at 89.4 cents and 74.3 cents, respectively, Tradeweb data showed.

It followed the central bank on Monday saying it will halt plans to buy back $1.5 billion of its international sovereign bonds due for redemption next year because of a lack of interest from bond holders to sell at deeply discounted prices.

Data released last week also showed a sharp drop in Sri Lanka’s currency reserves to $2.58 billion, leaving them at a mere 1.6 months of trailing goods imports, according to analysts at Tellimer.

“Without meaningful reforms, including FX devaluation and aggressive fiscal consolidation, backed by an IMF programme and funding, which the government continues to resist, we think Sri Lanka will be unable to stave off a wholesale BOP (balance of payments) crisis and default beyond Q1 22,” Tellimer’s senior economist, Patrick Curran, said in a research note. 

Stocks

Sri Lankan shares snapped a three-day winning streak to close lower on Monday, as losses in heavyweight industrial and financial stocks weighed, while bonds fell after the central bank scrapped a buyback plan.

The CSE All-Share index closed 0.31% lower at 9,649.26.

Conglomerate Expolanka Holdings Plc and Commercial Bank of Ceylon Plc were the top drags on the index, falling 1% and 3.1%, respectively.

The equity market’s turnover was 2.58 billion rupees ($12.90 million), according to stock exchange data.

Trading volume on the exchange fell to 115.4 million shares from 177.7 million shares in the previous session.

Foreign investors were net sellers in the equity market, offloading shares worth 149 million rupees, as per exchange data.

Sri Lanka’s government bonds suffered their biggest drop in nearly seven weeks after the central bank scrapped a plan to buy back a chunk of the country’s debt on the cheap after default fears pounded prices.

As of Sunday, the island-nation has reported 526,383 total confirmed coronavirus cases and 13,331 deaths from COVID-19, data from the country’s health bureau showed.

About 56.69% of the country’s population is fully vaccinated so far, according to data from Johns Hopkins University.

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