Those who know what a yield curve is also know well what an
inverted yield curve means. Inverted yield curves are not seen frequently. When
we did, a recession has followed almost always. Markets are known to be forward
looking.
As the global Covid-19 cases show an exponential growth so
has been the yield curve of Sri Lankan international sovereign bonds. The
worrisome trend during the past weeks which resembles that in Greece just
before the debt crisis is unprecedented for Sri Lanka.
Look at the shorter end.
6 month maturity: 4.50% → 5.72% → 11.34% → 21.55%
16 month maturity: 4.78% → 6.03% → 9.99% → 22.50%
Greece was a
part of the EU but Sri Lanka has no big brother overlooking the country and
ready for rescue. Has everyone been blinded to this by Covid-19?
