T-Bill Yields Fall Below 10%, Signal SBP Rate Cut

The federal government successfully raised Rs725.7 billion through its latest treasury bills (T-bills) auction conducted on Wednesday, with cut-off yields declining by up to 31 basis points across various tenors, resulting in most maturities falling below the 10% threshold for the first time in over four years. This development has significantly strengthened market expectations of an imminent policy rate reduction by the State Bank of Pakistan (SBP).

The auction received overwhelming investor demand, attracting total bids of Rs1.85 trillion. Of the amount raised, Rs432.5 billion was mobilised through non-competitive bids, while Rs293.2 billion came via competitive bids. The bulk of competitive allocations—Rs236 billion—went to the 12-month tenor, underscoring sustained investor preference for longer-duration government paper.

Yield reductions were observed across the board: the one-month T-bill cut-off fell 31 basis points to 9.8%, the three-month tenor declined 26 basis points to 9.89%, the six-month maturity dropped 22 basis points to 9.94%, and the 12-month bill eased 16 basis points to 10%.

These sharp declines in T-bill yields, coupled with a concurrent 70 basis point reduction in Pakistan Investment Bonds (PIBs) returns, are widely interpreted as a clear forward-looking signal of monetary easing. Market analysts anticipate that the SBP will lower its benchmark policy rate by 50 to 100 basis points at its upcoming Monetary Policy Committee meeting scheduled for January 26, 2026.

The softening of short- to medium-term government borrowing costs is expected to translate into lower financing expenses for both the public sector and private businesses, thereby supporting broader economic activity and growth momentum in the coming quarters.