Treasury bill yields soar across all maturities fuelling rate hike bets

The Treasury bill yields across all maturities surged at record levels this week fuelling expectations for another rate hike today by the Central Bank as bondholders expect higher yields to beat soaring inflation. 

At the bill auction held on Wednesday, the yields surged by between 72 basis points and 142 basis points across maturities, recording one of the highest jumps in primary market yields in recent times. 

The benchmark 1-year T-bill yield jumped 142 basis points at the auction to 9.95 percent despite being subscribed by only a fraction of what was offered.
Investors had stayed away too long from the longer tenor bills in favour of the more liquid 3-month bills in the bill auctions held during the last six months due to lower than expected yields from the longer tenor bills. 

Bond investors are expecting the yields to rise sharply from where they are right now as they are nowhere near the inflation rate of the country, and thus generating negative yields. 

“Given the recent market developments and the prevailing negative real interest rates, another rate hike is needed to meet the return expectations of market participants to regain market activeness,” said First Capital Research in a recent note, making a case for another 50 basis points rise in key policy rates today. 

Meanwhile in the United States, the Federal Reserve Chairman Jerome Powell on Wednesday proposed a 25 basis points hike in federal funds rate in March, triggering a trend that may entail several rounds of interest rate hikes this year. Responding to Congress questioning on inflation and the Fed’s policy response, the Fed said it is prepared to be aggressive to bring down the inflation to their desired 2 percent level. 

He said the Fed is watching the Russia-Ukraine conflict and its spillover effects and would do what it takes to fend off near term inflationary pressures that could come with record high energy prices.