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April 17, 2020

PIB yields decline sharply

Business

April 17, 2020

KARACHI: Pakistan investment bonds’ yields fell sharply as investors expected a further rate cut in interest rates by the central bank to limit the impact of the pandemic on the economy, analysts said.

The government raised Rs106.52 billion through an auction of PIBs, the auction result issued by the State Bank of Pakistan showed late on Wednesday.

The cut-off yield for three-year PIBs was down 303 basis points to 8.56 percent. The SBP sold Rs42.71 billion worth of the shortest-tenor PIBs.

The five-year bonds cut-off yield was down 216bps at 8.83 percent. The central bank sold Rs33.4 billion worth of such bonds.

The yield on 10 year paper fell 185 bps to nine percent, while the government raised Rs14.90 billion through the sale of this paper.

The SBP sold Rs10.31 billion of 15-year bond, while the yields on this paper remained flat at 10.49 percent, the results showed.

The yields on 20-year paper declined 110bps to 10.70 percent. Central bank sold Rs5.16 billion of these longer tenor PIBS.

Analysts had been saying that the economic fallout from the COVID-19 and the decline in inflation outlook were fuelling speculations over a possible policy rate cut in the upcoming policy review due next month.

However, the central bank slashed the interest rates by another two percentage points to nine percent, bringing it to a single digit in an out-of-turn move on Thursday. The policy rate has now reduced by a cumulative 425bps in one month.

“The investors were watching the SBP closely, but did not expect it to react too quickly to reduce the cost of borrowing for the third time in a month,” said an analyst. A cut in May was on the cards, he added.

Analysts see more falls in yields on treasury bills and less on PIBs in the coming auctions.

National consumer price index (CPI) inflation fell to 10.2 percent in March from 12.4 percent in the previous month.