Shorter tenure bill yields continue to edge up after CB’s hawkish comments

The shorter end of the Treasury bill yield curve continued to edge up after the Central Bank showed its resoluteness in fighting inflation at any cost at last week’s monetary policy meeting, where the key rates were left at the current elevated levels without providing any cues as to when the monetary authority expects to change course. 

At the first primary bill auction held yesterday after the seventh monetary policy meeting last week, the three-month bills added 71 basis points on top of last week’s 40-basis-point increase to end the auction at a yield of 33.05 percent. 

The six-month bill yield climbed 192 basis points after a more modest two-basis-point increase last week, to settle at 32.53 percent. 

However, the benchmark one-year bill yield eased 15 basis points after it shed 10 basis points last week to end at 29.60 percent, with the Central Bank accepting only a  fraction of the offered amount, as had been the case with the bill auctions held in recent times. 

Both bids received and the acceptances vastly skewed towards the shorter tenures, in particular the three-month bills, as both the issuers and investors favoured the relative near-term certainty over the uncertainty over the medium term.  The gradual drop in the primary and secondary market bill yields for four weeks in the run up to last week’s bill auction intensified the analysts’ bets that the Central Bank would signal a pivot towards easing the monetary policy by the end of the first quarter in 2023. 

However, the Central Bank refused to provide any cues over its future course of actions, instead used language to indicate that they would keep at the current tight policy until inflation shows a meaningful decline. 

The auction also saw the partial acceptance of the offered amount after four consecutive weeks of full or more than 95 percent accepted auctions.  The Central Bank offered Rs.90.0 billion in bills-- Rs.40 billion under the three-month bills and Rs.25 billion each under six-month and 12-month tenures but accepted only Rs.60.3 billion. 

The bulk or Rs.52.1 billion was accepted from the three-month tenure, as it received the highest bids worth of Rs.79.9 billion.