T-bills yields slip by 64-140bps ahead of inflation data, policy review

KARACHI: Market treasury bills’ yields dipped on Wednesday as investors looked ahead to October’s inflation figures and the State Bank of Pakistan’s monetary policy meeting, which is set for next week.

The cut-off yield on the three-month T-bill was down 140 basis points (bps) at 13.8998 per cent. The six-month T-bill yield fell 84bps at 13.5 per cent. The yield on a 12-month paper decreased by 64bps to 13.0997 per cent.

Compared to the secondary market, yields have risen by 7bps, 27bps, and 10bps. The current cut-off yields are now 13.9 per cent, 13.5 per cent, and 13.1 per cent, said a brokerage house Arif Habib Limited (AHL) in a note.

The SBP raised a total of Rs820 billion, exceeding the target of Rs400 billion, against a maturity of Rs893 billion, it said, citing the T-bills’ auction result.

“Investor bids reached Rs2,189 billion, resulting in a bid cover ratio of 5.5x, which reflects the strong liquidity in the market,” it added.

According to the most recent auction outcome, investors are eagerly awaiting the October consumer price index data, which is set to be published on Friday, to determine whether inflation will continue to decline from September’s 6.9 per cent reading as expected.

Analysts predict that the current rapid disinflation trend will continue, with a high base effect likely to cause the October CPI to drop to 6.5-7 per cent.

The possibility of an aggressive rate cut by the SBP at its November 4 meeting has been the subject of intense debate. In recent days, there has been an increasing expectation of a bigger 200bps cut. This would mark the fourth consecutive cut since June and bring the total reduction to 650bps.

The SBP had previously cut the policy rate by 350bps in July and September 2024, resulting in a cumulative reduction of 450bps since June 2024.

“Overall prices have remained soft due to declining international commodity prices and a stable currency,” said Optimus Capital Management in a note.

“With weak demand in China, commodity prices are expected to stay low. Additionally, reduced consumer purchasing power in Pakistan is likely to keep core inflation in check,” it said.

“Consequently, FY25 inflation is expected to remain below 7.5 per cent. We anticipate a 200bps policy rate cut on 4th Nov, as real interest rates are significantly positive (11 per cent on the next 12M average NCPI) and targeted GDP growth may remain challenging amid negative LSM growth in 2MFY25 and challenges in the agricultural sector,” it added.