The tightness in the commercial dollar markets comes amid increasing risk averse behavior worldwide, and credit spreads - even for AAA rated debt - have been widening.
Sri Lanka has also been faced with credit downgrades, with several years of fiscal profligacy coming home to roost.
The bond sale was announced shortly after Fitch Ratings cut the outlook on the country's B+ below-investment-grade sovereign rating to 'negative' from 'stable'
From September foreign buyers of government rupee bonds have also been selling out. The latest data shows that foreign holdings of rupee bonds have fallen to 6.7 billion rupees by March 2009. Sri Lanka advertised to sell a 200 million 2-year Sri Lanka Development Bond, paying a premium above the 6-month London Interbank Offered Rate (LIBOR) ahead of a 215 million dollar bond maturing issue this month.
The issue closed on March 09, but the public department did not finalize the allocation and inform buyers on the same day as is usual.
"We are confident of selling most of the bond," Central Bank governor Nivard Cabraal said.
Officials say an announcement of the bond sale would be made soon.
A 215 US million dollar bond matured on March 16.
The latest bond sale was open to local banks and other companies that have access to foreign currency assets approved by a foreign investment promotion agency.
But dollar liquidity has been tight in local markets and interest rates have been moving up, despite LIBOR rates falling.
State banks in particular which are funding both the government and a troubled petroleum retailer have been driving up yields in the dollar deposit markets, bankers say.