Yields on longer-term gov’t debt fall in 2019

January 2, 2020 (MLN): Like other domains of the country’s economy, money debt instruments showed a mixed trend. At the short end of the yield curve, the 3-months, 6-months and 1-year T-Bills went up by an average of 309bps, 277bps and 190bps, yielding 13.39%, 13.35% and 13.10% respectively in 2019.

However, the yields for longer-term debts, PIBs of 3, 5 and 10 years declined by 62bps, 176bps and 217bps respectively in said period. It recorded a high of 13.92% and a low of 10.95% when compared to the last year’s previous yield of 13.17%. The falling PIB rates reflected inflationary pressures which drove up the short term rates.

With regards to MPC, CY19 saw a halt in the monetary tightening cycle of the SBP, which climbed to 13.25%. A cumulative increase of 325bps had been witnessed in the policy rate during 2019, driven by higher inflation and currency depreciation.

It is expected that policy rate to come down by at least 200bps in 2020, which might further grow the spread between earnings yields over T-bills and PIBs.

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