reasury papers in great demand

Enormous liquidity paved way for a reasonably well-covered Treasury Bill auction on Wednesday. With financial institutions heavy on cash, the release of around Rs120 billion this week, on account of unsettled power sector subsidies by the government, took participation level close to Rs492 billion.
The demand outstripped the pre-auction target by 2.46 times, compared with an average 2 times for all auctions held since the start of FY11.
The six-month paper was at the centre stage of the auction, attracting nearly 64 percent of the total participation, with the 12-month paper grabbing the second best place with a participation level of 26 percent.
Warm welcome from investors helped the bond seller to slake its borrowing requirement by selling around Rs254 billion worth of papers. This amount is substantially higher than the Rs206 billion worth of treasury papers scheduled to mature a day after the auction.
Like the market, the benchmark paper also remained a favourite pick for the government, as it comprised three quarters of all the bids accepted in the auction. The 12-month and 3-month bills accounted for around 22 percent and 5 percent of the total accepted amount.
The cut-off yield on all three tenures declined, but the shortest tenure saw the biggest drop despite lower participation.
"With the government showing lack of interest in the short term paper, due to weak participation level and to minimize rollover risk, a small group of investors who require liquid paper in their investment portfolio placed bids on the lower side to improve their chances of acceptance this time," said a money market dealer.
The cut-off yield on benchmark paper fell by 14 bps to 13.48 percent, the lowest level seen in the entire auctions held since the start of CY11. This reflects the improvement in market confidence as the market is expecting interest rate to remain stable in the upcoming monetary policy.
Despite improvement in indicators, market confidence is still transitory, as higher fuel prices can play the villains role over the next two to three months by kindling strong inflationary pressures.