Sri Lanka, July 1 -- Investors are being told to put their long-term ambitions and retreat to the safer, short end of the market as Sri Lanka's economic recovery shows signs of severe strain.

A report from First Capital Research reveals that the market completely overreacted to recent shocks, leaving long-term bonds structurally fragile ahead of heavy external debt obligations kicking in from 2028.

The report argues the Central Bank overstepped the mark with its aggressive 100-basis-point interest rate hike in May.

Analysts have criticised the move as excessive for an economy whose recent 5.1% growth spurt was little more than a temporary, tax-fuelled mirage.

With household consumption choking under credit card interest rates now hitt...