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Bloomberg Comment – 21-11-2018

LKR, Bonds To Take a Hit on Rating Downgrade: Inside Sri Lanka
2018-11-21 03:38:59.308 GMT
By Anusha Ondaatjie

(Bloomberg) — Sri Lanka’s rupee and bonds are likely to extend losses after Moody’s Investors Service cut the island’s rating on Tuesday, citing a worsening political crisis that’s increasing the island nation’s refinancing risks.

* NOTE: Sri Lanka’s credit score slid deeper into junk as Moody’s lowered the rating by one level to B2, five levels below investment grade

* A downgrade was “bound to” come given the way things were going, says Dimantha Mathew, head of research at First Capital

** This is another negative from the perspective of foreign investors and will prompt more selling that will drag the rupee and local bonds lower

** “Local investors are also sticking to the sidelines” amid the deepening political crisis

* USD/LKR unchanged at 177.25; reached a record high of 177.40 on Monday; local markets were shut Tuesday for a holiday

* Overseas investors sold a net $0.8m of local stocks on Monday, taking withdrawals for the month to $25.5m: exchange data

* Yield on 10.75% govt bonds due March 2021 fell 14bps to 11.50% Monday, data compiled by Bloomberg show

* Government’s borrowing costs fell at an auction of treasury bills on Monday

* Credit concerns on Sri Lankan USD bonds remain, but these have now been reflected in wider spreads, according to Morgan Stanley