Govt raises Rs442bn in T-bill auction, yields fall by 10-18 bps

KARACHI: The government exceeded expectations by raising Rs442 billion through the auction of market treasury bills (T-bills), well above its initial target of Rs150 billion. The auction results, released by the State Bank of Pakistan on Wednesday, also revealed a slight decrease in yields across short-term papers.

The cut-off yield on a three-month paper decreased by 10 basis points (bps) to 20.05 per cent. The yield on a six-month note declined by 18 bps to 19.78 per cent. However, a 12-month paper maintained the same yield of 18.5400 per cent.

Investors displayed substantial interest in the auction, with total bids reaching Rs1.229 trillion, reflecting robust market participation.Analysts said the amount generated through the sale of T-bills surpassed the target, indicating the government’s growing need for borrowing to fund its budget deficit.

On Tuesday, the government raised Rs82 billion through the auction of Pakistan Investment Bonds (PIBs) versus the target of Rs190 billion. The yields on three- and five-year bonds remained unchanged.

Analysts and participants in financial markets are keeping an eye on the State Bank of Pakistan’s upcoming monetary policy decision to see whether it will continue its monetary easing cycle by lowering interest rates further at its upcoming review later this month.

The upcoming interest rate decision is particularly intriguing because, during virtual meetings, Pakistan and the International Monetary Fund were able to come to a substantial consensus on the terms and conditions of a new programme. Pakistan effectively fulfilled several IMF targets and requirements, such as budget adjustments and raising the price of gas and electricity.In June, Pakistan’s inflation accelerated for the first time in six months as energy costs increased. Consumer prices rose to 12.57 per cent in June, compared with 11.8 per cent in the previous month. In FY24, inflation clocked in at 23.4 per cent, exceeding the government’s target of 21 per cent for the same fiscal year.According to economists, inflation should keep declining, opening the door for additional interest rate cuts to mid-double digits in FY25. The SBP reduced its key interest rate by 150 bps to 20.5 per cent last month.