• 1: Investor confidence in Sri Lanka's bonds wanes; political uncertainty, upcoming elections behind sentiment

The sharp sell-off of Sri Lanka dollar bonds on Monday (9) may attract bargain-hunting with investors adjusting their position ahead of the presidential elections as uncertainty continues, market experts said.

According to Bloomberg, a sell-off in Sri Lanka dollar bonds intensified on Monday as investors reduced their country’s exposure over rising political uncertainties before elections later this month.

The country’s dollar bonds due in 2030 fell three cents on the dollar to 49.9 cents, the lowest level since February, extending their decline from their peak this year to about 15%.

Notes due in 2027 dropped more than one cent to 49.6 cents.

“It is looking probable that Sri Lanka will need to further refine the terms of the deal agreed with bondholders” and will struggle to do so before the election, Eng Tat Low, an emerging-market sovereign analyst at Columbia Threadneedle Investment told Bloomberg, “whilst I expect volatility to persist, the sharp sell-off we have seen over the past few sessions may attract some ‘bargain hunting’ activities.”

Moreover, speaking to Bloomberg, Purvi Harlalka, a senior emerging markets sovereign debt strategist at M&G said that the current weakness in Sri Lankan bonds reflects the heightened uncertainty around election outcomes and consequently the timeline of the restructuring.

“A possible National People’s Power (NPP) victory would push the timeline considerably beyond what the market was previously expecting,” she said.

“I think investors are adjusting positions ahead of the election,” Eric Fang, Fund Manager at Eastspring Investments in Singapore told Bloomberg.

He said that they think any big price correction presents an opportunity to buy as the sovereign is on a recovery path and the debt deal presents a fair outcome for both issuer and investors.