T-Bills yield decline despite high inflation

May 6, 2021

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In Treasury Bills Auction held on Wednesday, State Bank of Pakistan decreased the cut-off yields on treasury bills (T-bills) and raised PKR 617.8 billion.

SBP fixed a cut-off yield of 7.55% on the benchmark six-month T-bills, marking a decline of 14 basis from last auction. A total of PKR 299.4bn was raised against six-month T-Bills. For 3 months T-Bills, the cut-off yield declined by 5 bps to 7.35%. Total bids accepted for three months were PKR 232.3 billion.

Surprisingly, SBP accepted bids of PKR 25 billion in 1-year tenor where cut off yield stood at 7.69%. Analyst believes that Government is signalling the market that it will prefer longer tenor T-Bills instead of shorter terms (3,6 months) in upcoming auctions. While few Treasury Offices are of the view that Interest Rates are going to remain unchanged at least for one year as Finance Minister Shaukat Tareen has signalled a pro-growth strategy going onward.

SBP received total bids of PKR 1,618 billion for the auction of T-bills while it accepted PKR 617.8 billion, including PKR 61.2bn raised through non-competitive bids.

Despite the increase in inflation in April-2021 and higher expected inflation in upcoming months, cut-off yields declined. The bidding pattern suggests ample liquidity in the banking system was behind lower yields as participants participated at lower levels to ensure deployment of funds before Eid.