T-bills yields slide

As expected, the latest Treasury bill auction saw yields coming down. They did not come down crashing, but fell more than expected. Recall that the previous treasury bill auction saw cut-off yields coming down by 35 bps and the latest auction resulted in a further 30 bps cut in yields for 12-month paper.
So effectively, the yield slide of 60 bps after the previous monetary policy and right before the monetary policy due tomorrow hints that some circles in the market are still expecting a 100 bps cut. The 12-month paper yields now stand at 8.8619 percent, whereas market participants BR research spoke to are of the view that PIB yields may not fall this significantly after the monetary policy.
So the spread between T-bills and PIBs is likely to remain in favour of PIBs, which is why a reversal in T-bills yield is highly anticipated. The market is also running a very tight liquidity, as expressed by participants and as evident by the SBP open market operation window. The money injected in three OMO auctions stands at Rs1800 billion so far this month, well above average monthly injections in the tune of Rs1000-1200 billion in the recent past.
It makes sense for banks to fetch more money as the SBP has been providing liquidity at cheaper rates than bonds and securities. As long as the spreads are positive, banks will go for it, and that has been happening of late. On the auction itself, government accepted Rs156 billion, missing the target of Rs175 billion. For the first time in four auctions, has the target been missed despite heavy participation to the tune of Rs500 billion. Market insiders tell that most investors had placed bids on lower yields anticipating strong cuts, but the government seems to have other plans.
So if the T-bill auction is any guide, we should soon see a slight reversal in yields as policy rate according to most observers are not expected to be cut by more than 50 bps.