Sri Lankan dollar bonds have been on the rise, rallying about 10-15% over the last one month. This is likely on the back of a series of good news beginning with China approving a CNY 10bn ($1.5bn) loan to Sri Lanka via a 3Y currency swap. Next, news that an expected increase in Special Drawing Rights (SDR) by the IMF would see Sri Lanka likely to receive as much as $800mn. More recently, there are reports that the island nation sealed a long-awaited $500mn loan with the China Development Bank. JPMorgan analysts said, “The $500 million loan which will be disbursed this week, should provide a further boost to Sri Lanka’s FX reserves which the central bank recently estimated at $4.1bn in end March, excluding the $1.5bn PBOC FX swap line.” In the latest turn of events, the US Ambassador to Colombo Alaina Teplitz said that the US was ready to support Sri Lanka in its efforts to manage debt and stabilize the economy. All these factors are likely helping keep Sri Lanka’s bonds bid. Economically, Sri Lanka has been struggling with foreign reserves having depleted rapidly over the past year to ~$3.6bn from $7bn as per CEIC data with the nation also seeing sovereign downgrades by major rating agencies. In other news from Sri Lanka, the government has extended barring its banks buying sovereign bonds till April 2023.

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