By Abdul H. Azeez
A recent positive outlook in credit ratings, relatively high yields and strong demand from fund managers pushed demand to about 7.5 times that of Sri Lanka’s latest sovereign bond issue which hit the markets last week.
Fitch ratings recently upgraded Sri Lanka’s sovereign debt rating to B+ from BB-.Which is a stable outlook.
The yield of a bond indicates the risk premium expected by investors and the stability of the bond issue in the country. Sri Lanka’s yield is not as high as some countries, yet it is not as low as others either. The benchmark is the US bond yield which is currently just above three percent (itself somewhat high). US bonds are generally considered to be foolproof despite the country having a high debt to GDP ratio, so high that such a ratio would have spelt instant disaster were it attributed to any other country.
Bond yields are decided by market factors and the general ‘feel’ bond brokers will have of the demand environment. Since brokering is usually done by highly experienced investment banks, demand is more often that not accurately calculated.