Road shows for the bond have already started.
The rating agency said the end of a long drawn out war which reduced political risk, lower inflation economic growth, budget reforms backed by a successful International Monetary Fund program and stronger reserves helped the upward revision.
"After the long-running civil war ended two years ago, Sri Lanka has started to reap a peace dividend that has accrued to the economy and the security environment," Moody's said.
"The economy is expected to grow sustainably at around 8 to 9 percent over the medium-term as confidence is further bolstered and investment picks up."
Greater macroeconomic stability was seen in lower inflation after the war.
The re-integration of the north eastern areas earlier Tamil Tiger separatists was also helping food supply.
"Re-integration of the Tamil minority in the war-torn northeast region is progressing, namely in the provision of humanitarian assistance and supporting development projects," Moody's said.
"However, the process of political reconciliation is at an early stage and will need to advance further to ease persisting concerns about political risk.
"As such, Moody's assessment of event risk remains somewhat elevated, but at a moderate level in our global bond methodology framework."
Sri Lanka's debt was still a key problem for the rating.
"Among non-investment grade credits, only Lebanon, Jamaica, Ireland, and Portugal surpass Sri Lanka in terms of general government debt as a share of GDP," Moody's said.
"On a net present value basis, however, the debt burden is lower owing to a considerable share of concessional debt.
"Nonetheless, Sri Lanka is well-placed to grow out of its debt given its robust outlook for growth.
If the government could show better budget management on a longer term basis, it would help the ratings.
"Continued deficit reduction as targeted by the government coupled with the containment of inflation amidst sustained high rates of growth would be credit positive developments over the 12-18 month rating horizon," Moody's said.
"Such developments would lead to a steady reduction in the government's debt burden and would enlarge the government's fiscal space to cope with future contingencies or shocks.
"In other words, a longer track record in effective policy management by the post-civil war government would be viewed as credit positive."
Moody's says the country's balance of payments would be financed by foreign direct investment and there was a small increase in the balance of payments surplus.
"Merchandise export performance and tourism receipts have been especially buoyant early this year," Moody's said.
"Inaddition, Sri Lanka is rapidly building up its port cargo capacity, exploiting its strategic location astride the main shipping lane between the Middle East, South Asia, and Southeast Asia."
Sri Lanka has about 7.0 billion dollars of foreign reserves. Last week however a London court ordered a state petroleum retailer to pay 163 million US dollars owed on unpaid oil derivatives.
Over 200 million dollars remain to be paid to several other banks.