T-bill yields climb as investors weigh geopolitical risks ahead of SBP policy decision

Pakistan Treasury bill (T-bill) yields rose across most maturities on Wednesday as investors reassessed the inflation outlook amid escalating Middle East tensions and rising global oil prices ahead of the State Bank of Pakistan’s (SBP) monetary policy meeting next week.

 

At the latest auction, the cut-off yield on the one-month T-bill fell 5 basis points (bps) to 11.3504%, while yields on the three-month, six-month, and 12-month papers increased by 12 bps, 36 bps, and 51 bps to 11.5154%, 11.7951%, and 11.9938%, respectively.

 

The government raised PKR 729 billion through the auction, below its pre-auction target of PKR 800 billion, despite receiving bids totaling PKR 2.1 trillion.

 

Market participants attributed the steeper yield curve to concerns over higher oil prices rather than expectations of an immediate policy rate change. Rising Brent crude prices and disruptions to shipping routes in the Strait of Hormuz have heightened concerns over Pakistan’s import bill, inflation outlook, and current account.

 

Analysts broadly expect the SBP to keep its benchmark policy rate unchanged at 11.5% at its July 27 meeting. However, they noted that the central bank’s forward guidance will be more important than the rate decision itself.

 

While easing geopolitical tensions earlier had raised expectations of cumulative rate cuts over the coming months, the recent escalation between the US and Iran has pushed oil prices higher and reduced the likelihood of near-term monetary easing.

 

Analysts believe that if elevated crude prices and shipping disruptions persist, the SBP may adopt a more cautious stance in future policy meetings. Conversely, a de-escalation in regional tensions and lower oil prices could ease inflation concerns and support a decline in longer-term T-bill yields.