After more than four years, cut-off yields on three-month and six-month treasury bills have slipped back into single digits, a level last seen in November 2021. The latest auction results showed a broad decline in yields across all tenors, reflecting easing inflation expectations and growing confidence in an accommodative monetary policy outlook.

Cut-off yields for the 3-month and 6-month T-bills stood at 8.9995% and 9.9492%, respectively, while the 12-month tenor cleared marginally above 10% at 10.001%. These levels represent roughly a 4.2-year low across the curve.

For comparison, cut-off yields in November 2021 were around 8.5% (3M), 8.5% (6M) and 7.6% (12M).

Strong demand pushes yields lower

Government securities have continued to draw robust demand in recent T-bill auctions, driving a sharp cumulative decline in yields and reinforcing expectations of an accommodative policy stance.

In the latest auction, total participation reached PKR 1,849 billion, with the government raising PKR 961 billion, well above the target of PKR 700 billion and higher than maturities of PKR 715 billion. Yields fell across the curve, dropping 30 basis points (bps) for the 1-month tenor, 25 bps for the 3-month, and 21 bps and 16 bps for the 6-month and 12-month bills, respectively.

This followed the January 7 auction, which saw even stronger participation of PKR 2,555 billion. The government raised PKR 905 billion against a target of PKR 850 billion, compared with maturities of PKR 875 billion. Yields in that auction eased sharply by 29 bps (1M), 34 bps (3M), 32 bps (6M) and 33 bps (12M).

Cumulative yield declines and market outlook

Across the two auctions, yields have cumulatively fallen by:

• 59 bps in 1-month T-bills
• 59 bps in 3-month T-bills
• 53 bps in 6-month T-bills
• 49 bps in 12-month T-bills

The broad-based decline in yields reflects ample liquidity, strong investor appetite, and increasing confidence that inflation is easing. The government’s ability to raise funds well above targets further indicates favorable funding conditions.

Overall, the ongoing rally in T-bills suggests the market is increasingly pricing in further monetary easing or at least a prolonged pause, supported by attractive real rates and strengthening disinflationary trends.