Secondary market yields fall: SBP again conducts long-duration OMO

KARACHI: After a gap of 3-months, State Bank of Pakistan (SBP) again conducted a 63-day OMO (Open Market Operations) by injecting Rs 1.8 trillion at a rate of 13.84 percent. SBP also injected Rs 1.4 trillion in 7-day OMO at 13.78 percent.

To recall, SBP last injected Rs 425 billion at a rate of 9.91 percent on Jan 07, 2022 for 63-days. Similarly, it also conducted such 63-day OMO injections on December 17, December 24 and December 31 by injecting Rs 689 billion, Rs 382 billion and Rs 274 billion, respectively.

Normally, SBP conducts short duration OMO of 7-days, Umair Naseer, at Topline Securities said. This 63-day OMO provides banks liquidity for longer term that stabilizes rates in the money market.

OMO is a tool used by a central bank (or monetary authority) to inject or mop-up funds, based on the liquidity requirements, from the banking system via the purchase or sale of eligible securities. Operationally, in case of OMO (Injections), SBP lends funds to banks against eligible collateral to address liquidity shortage in the system.

Yields especially in the shorter tenure rose sharply due to delay in IMF programme, huge subsidy on petrol/ diesel, and depleting foreign exchange reserves, he said.

In 2022 to date, 6M/12M T-Bill yields were up around 330bps to 14.61 percent to 14.65 percent till Thursday. Yields on 3-year and 5-year bonds increased by 200bps and 130bps to 13.51 percent and 12.76 percent, respectively.

To recall, SBP in its last analyst briefing post Monetary Policy Announcement stated that it can use various monetary policy tools to bring stability in secondary market yields, he said.

As a result of this development and announcement of increase in petrol prices, secondary market yields have started showing downward trend, he added.

“As per our channel checks, yields on shorter tenure instruments 6M/12M T-Bills are down by 20-40bps to around 14.4 percent, down from a recent high of 15.1 percent on May 16, 2022”, he said.

Pakistan Stock Market and currency market also reacted positively to the development.

Copyright Business Recorder, 2022