The Sri Lankan rupee ended weaker on Monday as importers and banks bought dollars, speculating that foreign holders of the country's existing sovereign debt might sell them in order to invest in newly launched higher-yielding dollar bonds.
A new dual-tranche dollar bond float (LKGOVT.UL) saw orders exceeding $4.5 billion. The final guidance for the 5.5-year tranche was around 5.8 percent (+/-5BPS) lower than initial guidance which was in the area of 6.125 percent.
For the 10-year bond final guidance was around 6.875 percent (+/-5BPS) lower than the initial guidance of around 7.125 percent. The bonds could raise up to $1.5 billion, three sources close to the deal told Reuters on Monday, as book building began. The Sri Lankan rupee one-week forwards, which have been acting as a proxy for the spot rupee, ended at 146.20/50 per dollar, weaker than Friday's close of 146.00/10.
The spot rupee is tightly managed by the central bank and market participants use the forward market levels for guidance on the currency.
"The demand was there and investors were waiting to see the outcome of the sovereign bond (issuance). If the rates are higher, we might see some foreigners holding on to local bonds shifting to the sovereign bond," said a currency dealer, asking not to be named.
Dealers said the central bank did not intervene in the foreign exchange market for the fifth straight session on Monday.
Last week, central bank governor Indrajith Coomaraswamy said the bank would manage the exchange rate flexibly avoiding too much volatility.
The spot rupee was not quoted, but the spot-next, which are rupee forwards settled three days after the spot rupee settlement ended at 146.10/30, dealers said.