Sri Lanka’s bond market is evolving. As interest rates stabilise, investors are moving beyond traditional savings to view government securities as active, yield-generating instruments. Medium-term bonds, once seen as conservative, are now gaining traction among both individuals and corporates seeking a balance between income, risk, and liquidity. Amid this shift, HNB Securities is playing a key role in guiding investors and widening access across the country.
Backed by HNB’s nationwide network, the firm combines advisory expertise with educational outreach to help more Sri Lankans make informed investment decisions. Pradeep Wanniarachchi, Senior Assistant Vice President of Marketing at HNB Securities, and Kushan Maduranga, Assistant Vice President of Marketing at HNB Securities, share what’s driving market confidence, how investor priorities are shifting, and how HNB Securities is positioning itself for this new phase of informed investing.
What factors are driving investors to view government securities as proactive yield instruments rather than passive holdings?
Pradeep: Investors are increasingly considering government securities as proactive yield instruments because they combine safety with flexibility. These instruments carry virtually no risk, and their liquidity is high, which means investors can exit when needed. That 100% liquidity is a strong attraction. In today’s dynamic market, treasury bills and medium to long-term bonds help investors to plan better returns while keeping their funds accessible. For instance, a three-year bond allows an investor to lock in returns for that period, yet the option to liquidate early remains if cash is required. We also see growing interest in medium-term bonds — typically three to five years in duration — as more investors recognise the appetite for stable yet responsive instruments. These features make government securities more appealing than conventional savings products.
Are markets accurately reflecting the balance between inflation risks and rate normalisation?
Kushan: Markets today are taking both inflation and interest rate changes into account. Short-term rates reflect current liquidity and central bank policy, while medium and long-term yields point to future economic expectations. Although markets are not perfect, these signals offer a useful guide for investors assessing the balance between inflation risk and rate normalisation. By paying attention to these signals, investors can make informed decisions, identify opportunities, and manage duration exposure. This helps reprice accordingly to market sentiments and achieve their financial goals while navigating shifts in economic conditions.
How is the growing investor focus on yield rather than just safety reshaping demand across maturities?
Pradeep: I would say that now both individual and corporate investors are showing stronger interest in government securities. One key reason is liquidity. Medium-duration bonds are seeing high demand because they offer a good balance between income and risk, while short-term bonds remain important for maintaining portfolio liquidity.
Even institutions often go for medium-term bonds because they’re easy to liquidate. If you hold them to maturity, there’s practically no risk, and you still get your return within a short period. Some investors prefer a wider range — from short to medium term — to better manage their risk. Government securities now give that flexibility. Investors have options across very short, medium, and longer tenures to match their appetite. For example, a short-term repo might offer a slightly higher return, while a three to five-year bond lets you lock in returns for that period. And even then, you still have the freedom to liquidate whenever needed.
Why might the current phase of the rate cycle offer an attractive entry point for medium-duration bonds?
Kushan: The current phase of the interest rate cycle makes medium-duration bonds particularly attractive. Rates have begun to stabilise, creating an opportunity to secure moderate yet steady yields. Medium-term bonds offer consistent income and are less sensitive to rate fluctuations than long-term instruments, which makes them a reliable investment choice. We’ve seen a slight upward trend in these bonds, reflecting changes in investor sentiment and broader economic conditions.
This has driven rising demand, especially among foreign investors who are seeking mid-term opportunities in Sri Lanka. Given these conditions, it’s a good time for investors to consider laddered strategies that spread risk across short, medium, and long-term holdings. Medium-duration bonds allow investors to earn steady income while keeping the flexibility to adjust as market conditions evolve. With the Central Bank of Sri Lanka now adopting a policy of stabilising both ends of the yield curve, the mid-range segment offers a balanced mix of return and liquidity.
How is HNB Securities differentiating itself through investor education and advisory initiatives?
Pradeep: HNB Securities has a strong legacy in investor education and advisory work. Established in 2000 as part of HNB, we have grown steadily and now operate with the backing of the HNB Group and its extensive branch network. This gives us access to both corporate and retail clients across the country, including high-net-worth and institutional investors. We currently have sales offices in Kandy, Kurunegala, and Matara, supported by more than 250 HNB branches that help us reach clients with ease.
Education remains central to what we do. We conduct seminars, workshops, and regional conferences to raise awareness about government securities. These initiatives help both retail and institutional investors make informed decisions. We work closely with the Central Bank and other institutions to deliver these programmes, which are held islandwide.
Kushan: We are also expanding our footprint to serve investors more closely. This year, we opened a new branch in Jaffna, the first HNB investment banking branch in the region, bringing together HNB Securities, HNB Stockbrokers, and corporate finance. Next year, we plan to open a few more standalone branches beyond the HNB network to strengthen our presence. Through these efforts, our goal is to ensure that more Sri Lankans understand their investment options, diversify their portfolios, and make sound financial decisions.