Market Performance

The money market remained volatile during the month where overnight REPO rates remained on the higher side for most of the month. The central bank remained active and carried out OMOs during the month. The SBP raised Rs 229bn through T-bill auctions in July against Rs 175bn of maturity while the cut off yields in the last auction remained unchanged across the board. At the end of the month, the central bank surprised the market by increasing the policy rate by 50bps.

Fund Performance

The fund generated one of the highest returns since its inception and closed the month at 11.14% on annualized basis. In line with our view of stickier interest rates, we will continue keep a lower duration for the fund. Treasury bills continued to be the major holding while  placements with high rated banks also contributing around 20% of the portfolio. We expect the fund to improve its returns in line with the interest rates.

Future Outlook

The country’s consistently high fiscal deficit has become a major challenge as the government is financing itself either by borrowing from the commercial banks (which is crowding out the private sector) or from SBP (which is keeping inflation higher). As these problems are expected to remain intact in the short term, we expect the interest rates to remain on higher side.