Government Raises Treasury Bill Yields, Surpassing Policy Rate Significantly

KARACHI: The government has raised the cut-off yields on treasury bills by up to 75 basis points, exceeding the State Bank of Pakistan’s policy rate of 11.5 percent. This adjustment, announced on Wednesday, reflects a strategic move to enhance returns on risk-free investments.

In the latest auction, the government increased profit rates across all tenors, with the six-month treasury bill seeing the largest hike of 75 basis points, bringing the yield to 12.45 percent from 11.70 percent in the previous auction on September 16. The government successfully raised Rs88.3 billion through these six-month bills. Additionally, the three-month T-bill rate rose by 61 basis points to 11.99 percent, generating Rs143.86 billion.

The 12-month T-bill also saw an increase, albeit the smallest at 45 basis points, reaching 12.49 percent, which is 99 basis points above the SBP’s policy rate. This widening gap between T-bill yields and the policy rate has surprised market participants and sparked speculation regarding a potential interest rate hike at the upcoming SBP Monetary Policy Committee meeting scheduled for October 26.

As the financial market reacts to these developments, analysts are closely monitoring the implications for the broader economy, particularly in terms of investment strategies and consumer borrowing costs. The upcoming Monetary Policy Committee meeting will be pivotal in determining the future direction of interest rates and economic policy.