In the recent bond auction, the yield curve has further steepened. Latest numbers reflect 7.97% (+33bps), 8.44% (+39bps), 8.99% (+30bps) and 9.90% (-7bps) for 3, 5, 10 & 15 years, respectively. Against the target of Rs 150bn, the govt accepted Rs 117bn. Clearly, the participants are realising that lowest yields are behind us. Perhaps, yes.

A few things are clear, the govt wants to increase long-term debt profile. The acceptance ratio was 60%, 63%, 87% for 3, 5 and 10 years, respectively. The 15 year is merely symbolic to show that the rates are below 10% water-mark. The acceptance ratio hovers between -50% to 50% auction target to show discipline & develop the long term debt market.

In the previous auction 40% was picked between 5 & 10 years, whereas in the current one 30% was picked between 5 & 10 years. Elongating debt maturity despite increasing yields.

Of course, the foreigners would not be inclined at these rates in covid 19. It’s too early to say if discount rate will not be cut. The steepening of the curve still imply that short term 3-6 months T bills rate have a room for a 50-75 bps cut. There is a possibility, politic pressure & inflation-led room. Will Reza go for it?