Yields rise, but where’s the stress?

Business Recorder reported that yields in the money market are edging higher ahead of a monetary policy decision expected in roughly two weeks. Ten-year bonds are now pricing close to 13 percent, while the policy rate sits at 11.5 percent. Banking treasuries increasingly expect a rate increase, though a few see no visible external or fiscal strain that would justify one.

The article argues that the minority view has merit, since the economy is moving very slowly and any demand pickup has faded after a sharp rise in petroleum prices. Petroleum costs are being passed on in full, while lower RLNG imports and rising home remittances have kept external pressures in check. Inflation has edged up, but real interest rates remain positive.

The piece links the latest climb in yields mainly to tightening abroad, especially rate increases in the United States, which have widened the gap with Pakistan. It argues that the historical pattern of external and fiscal cracks at 13 percent yields is absent today, with debt-to-GDP falling and SBP forex reserves rising. It adds that even if the SBP holds rates, the tone should remain hawkish and prudence is needed.