SBP lowers T-bill yields for shorter tenors, raises 12-month rate

KARACHI: The State Bank of Pakistan (SBP) reduced cut-off yields on treasury bills with maturities of up to six months in its latest auction, while the rate on 12-month papers moved higher by 14 basis points.

According to SBP data, the sharpest decline was recorded in the one-month tenor, where the yield fell by 49 basis points to 10.69pc. The yield on three-month papers was lowered by 35 basis points to 11.43pc, while the six-month tenor was cut by 32 basis points to 11.15pc.

In contrast, the yield on 12-month treasury bills increased by 14 basis points to 11.89pc.

The government raised Rs1.5 trillion through competitive and non-competitive bids in the auction. Total participation stood at Rs4.249tr, indicating strong investor interest in government securities.

Inflation and rate outlook

In the previous T-bills auction, yields had pointed to the possibility of an interest rate increase. However, the outlook changed after the Middle East crisis, as higher oil prices added to inflationary pressure. Inflation influences the direction of interest rates, and the SBP kept the policy rate unchanged in March.

Inflation rose to 7.3pc in March, compared to 7pc in February, showing an upward movement.

Earlier, at the end of January, the central bank had cut the cash reserve requirement by one percentage point to 5pc in an effort to improve liquidity in the banking system and support activity in the private sector.

Investor preference for government papers

Rising geopolitical tensions in February, before US and Israeli strikes on Iran on Feb 28, prompted caution in the private sector and affected investment and expansion plans.

The auction pattern suggests banks are still hesitant to increase lending to the private sector and are instead placing funds in government securities, which are seen as risk-free, particularly amid uncertainty linked to the Gulf crisis.

Pakistan’s economy also remains vulnerable to the effects of the conflict because of its heavy dependence on imported oil and gas, the prices of which have risen sharply.

The latest auction results reflect continued demand for government debt instruments at a time when inflation, energy prices and regional tensions remain key factors shaping market expectations.