ISB pricing volatile on Trump tariffs but SL debt reform boosts outlook: CAM

Sri Lanka’s international sovereign bond (ISB) prices were sensitive to global market volatility sparked by US President Donald Trump’s tariff announcement, according to market participants, adding pressure to an otherwise improving credit outlook.

“Recent volatility in global equity and bond markets, triggered by US President Donald Trump’s tariff announcement, had a notable impact on the ISB pricing. However, the 90-day pause on tariff implementation is expected to ease tensions and provide time for trade agreements to be negotiated and reduce uncertainty,” a note by Ceylon Asset Management (CAM) highlighted.

Sri Lanka’s rating was upgraded from ‘Restricted Default’ to ‘CCC’, following the December 2024 restructuring and exchange of its ISBs. The exchange for the three new types of sovereign bonds has been key in restoring foreign investor confidence.

The Central Bank of Sri Lanka was credited for key macroeconomic gains that underpinned the rating upgrade.

Sri Lanka now offers four macro-linked bonds (MLBs), linked to the GDP growth, a governance-linked bond (GLB) and a short-term fixed coupon bond for unpaid past due interest (PDI). The MLBs offer variable returns, depending on Sri Lanka’s GDP growth from 2024 to 2027 (e.g. capital haircuts can vary between 16 percent and 39 percent). The GLB interest can vary depending on meeting the 15.3 percent and 15.4 percent of total revenue/GDP thresholds in 2026 and 2027, respectively. The PDI bond offers a fixed coupon of 4 percent until maturity in 2028 and currently trades at around US $ 92.75.”