March 2, 2020 (MLN): Bond yields, which had been falling since last week, fell further as the decline in CPI numbers exceeded market expectations.

Yield for 3-year bond fell by 15 bps to 11.80%, 5-Yr Bond yield declined by 20 bps to settle at 11.05% and the 10-Yr bond yield dropped by 5 bps to 11%, exhibiting a flat yield curve as the spread between short term and long term bonds narrows.

The impact of lower inflation readings can also be seen in the equity market as KSE-100 has rebounded and is currently trading at 39,023 level, up by 1036 points [1:12 pm].

Moreover, the decline in the inflation numbers will fuel the market expectations for an early cut in the policy rate.

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