Karachi August 31 2023: Yields on Pakistan Investment bonds and treasury bills experienced a significant increase in the secondary market over the past week, driven by expectations of a forthcoming rise in interest rates.
Throughout the week, the yield on the 3-year bond saw the most pronounced escalation, climbing by 50 basis points to reach an all-time high of 20.3 percent in the secondary market. Meanwhile, the yield on the 3-month paper rose by 13 basis points. Yields for the 6-month and 12-month papers recorded increases of 4 and 8 basis points, respectively. In contrast, the 5-year and 10-year bond yields elevated by 11 and 7 basis points, sequentially.
Presently, the 5-year Pakistan bond offers a return of 16.95 percent, while the 10-year bond yields a return of 16.17 percent according to MUFAP (Mutual Funds Association of Pakistan).
Insight securities, a Karachi based brokerage house, in its research report expect headline inflation to peak in Sep’23 at ~33 percent due to increase in prices of food and petroleum products. This surge is attributed to the rising costs of food and petroleum products. In coming months, inflation is anticipated to stay at elevated levels, largely influenced by adjustments in electricity and gas rates.
As per insight estimates, petroleum product prices are expected to inch up by PKR10-20/ltr in next fortnightly revision. Furthermore, the significant upswing in the PKR/USD exchange rate over the past few days, combined with wage pressures, is expected to keep inflation projections elevated. As per our calculation, CPI is likely to average ~25 percent in FY24 against central bank’s estimate of 20 percent -22 percent.
“The Monetary Policy Committee is set to convene on September 14th, and there is widespread anticipation of a substantial increase in the benchmark rate, potentially ranging from 200-300 basis points” Insight report states.