Bond auction falls short of target, three-year yield dips

KARACHI: The government raised Rs102 billion through the sale of fixed-rate bonds on Monday, falling short of its target of Rs160 billion, as investors showed preference for shorter-term instruments amid easing inflation expectations.

The State Bank of Pakistan (SBP), the central bank, said it sold Rs75 billion worth of three-year bonds at a cut-off yield of 19.1900 percent, down 15 basis points from the previous auction held on Sept 18.

It also sold Rs25 billion of five-year bonds at a yield of 16.9500 percent and Rs2 billion of 10-year bonds at a yield of 15.2500 percent, both unchanged from the last auction. No bids were received for 15, 20 and 30-year bonds. Analysts said the lower yield on the three-year paper reflected the market's view that inflationary pressures were likely to ease in the coming months, reducing the need for further monetary tightening by the SBP.

Pakistan's annual consumer price inflation surged to 31.4 percent in September from 27.4 percent in August, reversing a three-month downward trend, mainly due to higher fuel andood prices . However, some analysts expect inflation to moderate in the second half of the fiscal year ending in June 2024, as base effects kick in and global oil prices stabilise.

"We anticipate CPI inflation in coming months to remain on the higher side amid higher local fuel prices and expectation of a hike in gas prices. However on YoY basis inflation is likely to come down but at a much slower pace with a major decline expected to come in 2HFY24," said an analyst at Topline Securities . "We maintain our average inflation estimate of 23 percent for FY2024," the analyst added. The SBP has kept its policy rate unchanged at 22 percent since September 14, after raising it by a cumulative 15 percentage points since September 2021 to curb inflation and support the rupee currency .