PIB sale falls short of target, yields drop

KARACHI: The government raised Rs97 billion in the Pakistan Investment Bonds (PIBs) auction on Wednesday, falling short of its target of Rs190 billion, as yields declined across all tenors.

The cut-off yield on a three-year PIB decreased by one basis point to 16.6450 percent. The yield on a five-year bond dropped by three bps to 15.4500 percent, and the yield on a 10-year paper fell by five bps to 14.2999 percent. The bonds with terms of 15, 20, and 30 years did not receive any bids.

The auction results suggest the market is pricing in monetary easing, possibly as early as next month, as evidenced by the declining yields on Treasury bills and PIBs. "The market is anticipating the start of monetary easing soon, perhaps as early as next month," an analyst commented.

The next policy review meeting of the State Bank of Pakistan (SBP) is scheduled for June 10. Given the current situation, it will be notable to see how the SBP responds to the market's sentiment and expectations. It remains to be seen whether it will heed the International Monetary Fund's advice to maintain higher interest rates for an extended period, despite signs that inflationary pressures are subsiding.

The SBP kept the benchmark interest rate at a record 22 percent for the seventh consecutive time last month. Analysts expect the May consumer price index (CPI) inflation to register at 13.8 percent, significantly lower than in recent months, owing to the high base effect from last year and successive month-on-month declines, primarily driven by reduced food inflation.

Pakistan's inflation has decreased for the fourth consecutive month in April, as record borrowing costs have curbed the country's economic growth and domestic demand. Consumer prices increased by 17.34 percent in April year-on-year.

“The key to watch, however, is the inflation outlook from July onwards and the impact of same on monetary policy, as SBP has highlighted the Federal Budget FY25 (7th June announcement) and implemented July onwards as a key determinant of monetary policy direction, alongside impact from the implementation of IMF's recommendations in its upcoming programme,” said JS Research in the latest note.