Pakistan slashes T-bill cut-off yields to 19-month low

Pakistan's central bank trimmed the cut-off yields on three-month, six-month, and one-year treasury bills (T-bills) by 50 to 54 basis points (bps), a 19-month low.

The State Bank of Pakistan (SBP) conducted a T-bills auction on Wednesday through which it raised around PKR 350 billion against a target of PKR 210bn for maturity of PKR 205bn.

The central bank received bids totaling PKR 1,778bn for the auction.

The cut-off yields were trimmed by 52bps to 18.97% on three-month bills, 54 bps to 18.75% on six-month bills, and 50 bps to 17.74% on one-year bills.

The central bank raised PKR 63bn, PKR 111.29bn, and PKR 180.37bn from three-month, six-month, and one-year bills, respectively.

T-bills are short-term securities issued by the government to raise cash, and have tenures of 3 months, 6 months, and 12 months. They are considered to be low-risk investments since they are backed by the sovereign and have a fixed rate of return called the yield.

The yield depends on the country’s interest rate, market sentiment, and future expectations. After the bidding time for investors has ended, a certain cut-off yield is announced. All bids that are below the cut-off yield are then accepted. When the T-bill’s tenure has matured, the investor is returned the original amount plus the interest (yield).

The three-month bills' cut-off yield is the lowest since the Feb 8, 2023 auction while down by 553bps from the peak of 24.50% recorded during the Sep 6 auction.

Similarly, the six-month cut-off yield is also the lowest since the Feb 8, 2023 auction while down by 604bps from the peak of 24.79% during the Sep 6 auction.

Meanwhile, the one-year cut-off yield is the lowest since the December 28, 2022 auction while down by 733bps from the peak of 25.07% during that auction.

The central bank reduced the interest rate by 225 bps to 19.5% last month, easing the monetary policy after almost four years as inflation started to trickle down.