Bond, money markets rally as yields fall 30-70bps

KARACHI: Pakistan money and bond markets are rallying as yields are down 30-70bps in the secondary market during last two days, experts said.

The 3-, 6- and 12-month T-Bill rates are down to 15.00 percent/15.38 percent/15.59 percent, respectively in secondary market from 15.48 percent/15.71 percent/15.86 percent on July 13, 2022.

Similarly, yields on 3/5/10 years PIBs are down by 60-70bps to 13.33 percent/12.80 percent/12.58 percent versus 14.07 percent/13.37 percent/13.23 percent on Jul 13, 2022.

The yields on 3/6/12 month T-Bill are also down 34-75bps from last T-Bill auction on July 13, 2022 whereas PIB yields are down 65-67bps from last auction on July 14, 2022.

The yields have started falling since Pakistan reached staff level agreement with the IMF on July 13, 2022, Umair Naseer at Topline Securities said.

He believes that along with staff level agreement with the IMF program, sharp reduction in international oil prices and improved liquidity in the banking system have also resulted in lower yields.

Though, inflation is anticipated to remain elevated at around 18 percent on average in FY23, however, recent reduction in petrol/diesel prices (weight of 3 percent in CPI) and expectations of a further decline due to lower international oil prices could provide some relief, he said.

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“As per our channel check, excess liquidity in the system also helped in bringing down the overall yields in the market,” he said, This is evident from access of the SBP repo facility by banks which placed funds of Rs 198 billion with the SBP on July 14, 2022 and Rs 296 billion on July 13, 2022 at repo rate (floor rate) of 14 percent, he added.

This is also evident from heavy participation of Rs 725 billion in Thursday’s PIB auction by banks out of which government only accepted bids of Rs 145 billion, he said, adding that yields in this auction also remained in check and government did not accept bids in 10-year bonds signaling market that it is not willing to accept such high rates for long term bonds.

“We believe that realization of the IMF and other foreign flows, global commodity prices and overall economic and political situation will remain key for the outlook on bond and treasury yields.”

Copyright Business Recorder, 2022