Building on the yield trend observed in July and August, investor sentiment in Sri Lankan government securities has shown continued improvement, despite a volatile geopolitical climate and selective investor positioning across maturities.

At the T-Bond auction held on 25 August, the PDMO raised the full Rs 50.0 billion on offer. This comprised a Rs 30.0 billion bond maturing in 2030 and a Rs 20.0 billion bond maturing in 2035, with coupon rates of 10.00% and 11.50%, respectively. 

Between 13 July and 25 August, the Weighted Average Yield on the 2030 maturity dropped by 103 basis points to 10.54%. The 2035 maturity also saw its yield fall by 18 bps to 11.70%, down from 11.88% on 26 June 2026, though market sources attributed the 2035's slower decline to "long term uncertainty".

The 24 August T-bill auction marked the seventh consecutive week of T-Bill yields easing, with the 12-month rate falling below 10% level for the first time in the current cycle. Despite mixed performance observed earlier during T-Bill auctions in July, where some auctions saw selective participation, investor sentiment has since moved towards a broader downward trend in yields, driven by increased banking sector liquidity. 

By late August, excess liquidity had grown to Rs 333.21 billion, supporting the easing of yields across maturities, though liquidity has since varied, contracting to Rs 322.87 billion on 25 August before rising to Rs 330.09 billion by early September.

By early September, foreign holdings of local government securities had climbed to Rs 210.6 billion, up from approximately Rs 176.5 billion in mid-July, marking a 19% increase over seven weeks. 

This sustained foreign demand, alongside continued full subscription of government securities, suggests ongoing institutional confidence ahead of the next long-bond issuance, even as foreign exchange outflows for dividends and profit repatriation in the first half of 2026 reached $ 837 million, nearly three times the $ 285 million recorded in the same period of 2025.