Benchmark 1-year T-bill yield surpasses 10% hitting 3-year high

The benchmark one-year Treasury bill rate surpassed 10.0 percent at the bill auction held yesterday, first time since the Central Bank raised its key policy rates last week, hitting more than a three-year high. 

The one-year bill rate, which rallied in the last couple of weeks, climbed another 71 basis points yesterday, after a 142 basis point jump at the previous week’s auctions to be quoted at 10.66 percent.  This is the highest yield for the benchmark rate since February third week, when the yield was at 10.72 percent. 

However, the bond investors expect the yields to go up further, as the subscriptions for the benchmark bill was just a fraction of what the Public Debt Department offered.
The Public Debt Department of the Central Bank offered a total of Rs.60 billion yesterday in equal shares across the three tenures. 

The Central Bank received Rs.79.4 billion worth of bids under the three-month tenure but accepted only Rs.59.4 billion at an average weighted yield of 10.29 percent, up 96 basis points from last week. 

There were bids worth of Rs.20.3 billion and Rs.20.8 billion under six-month and 12-month tenures but the Central Bank accepted only Rs.300 million and Rs.325 million, respectively at average yields of 10.48 percent and 10.66 percent, respectively, going up by 60 basis points and 71 basis points each. 

This week’s auction is indicative of the 100 basis-point hike in key rates last week, which is barely sufficient to absorb the entire economic shock and the Central Bank may have to adjust rates more in the coming months. 

Inflation is also getting hotter and the fixed income investors in particular expect higher yields and rates, which can beat inflation so that they could preserve their real incomes. 

In another policy correction, the Central Bank on Monday devalued the rupee to 230 to a dollar but that too is unlikely to be enough, given the elevated parallel rates operating in the market. 
In any case, economic analysts opine that the reforms, though too little and too late, are welcome and should be the starting point. 

The larger subscriptions in the nearest tenure bills by the investors suggest that they expect the medium to longer tenure bill yields have more room to run higher.