T-bill yields rise amid inflation concerns

KARACHI: The government raised Rs696 billion from the auction of market treasury bills on Wednesday, falling short of the target of Rs750 billion, while yields increased across all tenors due to the market repricing interest rate expectations amid escalating inflation fears.

The one-month cut-off T-bill yield rose 41 basis points (bps) to 11.1502 per cent. The three-month yield jumped 20bps to 11.0499 per cent. The six-month note yield advanced 21bps to 11.0499 per cent, while the yield on the 12-month paper increased 19bps to 11.19 per cent.

Pakistan’s inflation accelerated sharply in September, with the consumer price index rising to 5.6 per cent, above the government’s forecast of 4.5 per cent. Inflation reached 3.0 per cent in August.

The three-month (July-September) inflation rate was 4.22 per cent, in contrast to 9.19 per cent during the same period last year. Price pressures have resurfaced following months of relative easing due to flood-induced disruptions to food supply chains, prompting traders to assess the inflation spike and its potential impact on the central bank’s monetary policy going forward.

Saad Hanif, head of research at Ismail Iqbal Securities, said the T-bill yields rose in the latest auction as the market repriced expectations amid rising inflation concerns and tight liquidity.

“Investors demanded higher returns, anticipating that the State Bank may keep monetary conditions restrictive for longer in response to elevated inflation and renewed price pressures amid recent floods,” Hanif said.

“Liquidity in the interbank market remained strained due to heavy government borrowing, further pushing yields upward,” he added.Against a target of Rs200 billion and a participation of Rs394 billion, the government raised Rs247 billion (competitive and non-competitive) from the sale of floating-rate Pakistan Investment Bonds on the same day.

The State Bank of Pakistan held its key interest rate at 11 per cent last month. The SBP has cut rates by 1,100 basis points (bps) since June 2024. Last time, it reduced rates by 100bps in May 2025 and kept them steady in June and July.The central bank expects inflation to inch higher in the coming months, but to remain close to its target range of 5-7 per cent.