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Investors playing the waiting game

With the government counting on sovereign bond market and local commercial banks eyeing lucrative investment avenues, the second Treasury-bill auction of the fourth quarter was fairly well covered and successful.

The amount of bids placed outstripped the auction target amount by 1.6 times. The government also accepted bids close to Rs233 billion, over and above the asked amount of Rs225 billion.

The benchmark paper alone accounted for nearly three-fourth of the total participation level in the auction. On the other hand, tenders for the 3-month and 12-month papers amounted to Rs44 billion and Rs50 billion, respectively.

In line with fundamentals and market-based forecasts, the poor participation level in 3-month paper is pointing to stable interest rate in the next few months. Market sentiments improved on account of slight respite in inflation, stability in rupee and improvement in overall balance of payment.

Since a long term interest rate outlook is dicey at the moment, the exposure in benchmark paper provides an opportunity to lock returns at the current level and, wait until economic conditions become clearer.

As around Rs294 billion worth of T-bills were scheduled to mature on April 21 -- amount that is slightly higher than the pre-auction target amount - the investor placed lower bids for 6-month paper to increase their chances of acceptance.

The auction bid pattern shows that the lowest bid placed for 6-month paper fell by 11 bps to 13.48 percent as against the previous treasury auction held earlier this month.

Eyeing an opportunity, the government sold around Rs168 billion worth of 6-month papers. The weighted average yield on 6-month paper fell to 13.60 percent from around 13.65 percent in the previous auction, while the cut-off yield dropped by 7bps to 13.62 percent.

However, the government sold Rs17 billion and Rs 47.5 billion worth of 3-month and 12-month paper, respectively, keeping the weighted average yield on these papers constant at the last auction’s level of around 13.25 percent and 13.83 percent, respectively.


As commercial banks are aggressive in increasing their investment portfolios to minimize exposure to risky advances and loan portfolios; T-bill auction would continue to see strong market participation. However, if inflationary pressure increases down the line, bulk of the buying pressure would again shift to 3-month paper. However, if the macroeconomic indicators improve further then the 12-month paper could become the next talk of the town.


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