Pakistan’s secondary market yields plunged to their lowest levels in up to two years following a rate cut announced by the State Bank of Pakistan (SBP) on September 12.

According to latest statistics from the SBP, the yields on the one-year, three-year, and 10-year securities are at their lowest points in 2.5 years at 14.29%, 12.70%, and 12.45%, respectively. Additionally, on September 26, the five-year certificate stood at 12.62%, a 2.3-year low. Commercial banks perform transactions using these rates on an overnight basis.

As investors placed bets on monetary easing in the upcoming months amid dropping inflation, Pakistan’s secondary yields dropped sharply. The 3-month rates are 136 basis points lower than the policy rate, which is 17.5% (the yield-to-policy spread).

To recall, Pakistan’s central bank cut the policy rate by 200 basis points in response to a faster-than-expected drop in inflation, partly caused by delayed increases in administered energy prices and favorable movement in global oil and food prices.

As a result, the benchmark six-month KIBOR is also down to an almost three-year low of 15.89%.

This reflects improved market sentiment as the investors gauge the declining inflationary path and a more stable economic outlook.