Yields on debt securities fell sharply
KARACHI: Bond yields fell on the board at an auction on Wednesday as markets linked central bank bets will be pressured to further cut interest rates to support the economy from the spread of coronavirus.
The cut-off yield for the three-month T-bill fell 40 basis points to 10.90 percent. Yields on six-month securities fell 100 bps at 10.30 percent, while yields on 12-month paper fell 122 bps to 9.65 percent.
Analysts said investors anticipate more cuts in policy rates. “Today’s auction is also a clear sign of recession, decline in economic activity, falling asset prices and lower interest rates,” said Mohammed Sohail, CEO at Topline Securities. “Investors think interest rates will fall further.”
The central bank on March 25 cut interest rates by 150 basis points – the biggest rate cut in more than seven years – in an emergency meeting outside the cycle to dampen the already sluggish economy from the fall of the coronavirus.
A week earlier for an emergency rate cut, the central bank at a monetary policy meeting usually gave the much-awaited interest rate cut of 75 basis points. The State Bank of Pakistan cut the policy rate cumulatively 225 basis points to 11 percent
Analysts increasingly see the central bank moving in the direction of another interest rate cut on the back of a weak set of economic data recently. In the auction, the government borrowed Rs156 billion through a three-month paper, Rs142.8 billion from six-month T-bills and Rs160 billion from 12-month paper. The government collected a total of Rs459 billion through the auction of T-bills.
Pakistan has been facing outflows of foreign funds from government securities since last month due to monetary easing by the SBP and shaking up global markets amid an outbreak of the corona virus that has thinned the country’s short-term debt demand. Foreigners are net sellers of $ 73 million of securities on April 6 (Monday) central bank data shows. However, they have been net buyers of $ 1.2 billion of T-bills so far this fiscal year.
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