KARACHI: Cut-off yields on treasury bills have started moving up as the market again witnessed an increase of up to 15 basis points on Wednesday, hinting at a change in the interest rate scenario.

The government has not only increased the returns on T-bills, it also borrowed more than the target set for the quarter from mid-June to mid-August. The details showed that the cut-off yields on three-month papers rose by 14bps, and 15bps on both six- and 12-month tenors.

A change was witnessed in the previous auction when the cut-off yields rose after a steep fall beginning from November 2014. Since the inflation fell below expectation, the State Bank started cutting interest rates, and the weighted average yield on three-, six- and 12-month tenors fell from 9.92 per cent, 9.922pc and 9.96pc respectively in November 2014 to 6.60pc, 6.63pc and 6.70pc at the end of May.

However, the rates started to rise again from the beginning of this month. The first increase was noted on June 10 and the second on June 24.

The highest amount of Rs78 billion out of total Rs91bn was raised through three-month T-bills with a cut-off yield of 6.93pc.

The government raised Rs11.4bn and Rs2bn from six- and 12-month papers with cut-off yields of 6.95pc and 6.97pc, respectively.

Though the main inflation is still low, various indications show that it is the turning point for the interest rate scenario. The State Bank has been slashing the interest rates since November 2014 in the wake of falling inflation and the last month policy interest rate was fixed at 7pc.

Experts believe that the rise in cut-off yields for the last two auctions indicates a possible change in both the inflation and interest rate.

The SBP also noted the change in the banks’ investment strategy since they have stated maximum money for short-term government papers compared to long-term papers which had attracted highest amount from the banks.

According to the SBP, the banks invested Rs387bn in the treasury bills in the first quarter of this year compared to a withdrawal of Rs382bn in the same period a year ago

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