The continuing slide in global oil prices has shifted many a priorities and Pakistan's treasury market players are also in the race. After the recent discount rate cut of 50 basis points, it was widely anticipated that the yields in longer term papers would fall drastically and the interest in treasury bills would return. But oil price outlook and the drop in inflation has changed many a minds, and the spread between treasury bills and PIBs has stayed where it was in the pre-rate cut era.
A vast majority of treasury managers BR Research spoke to have a rather surprising outlook for yearly average inflation at 5 percent.
"The interest rates should go down by 150-200 bps by the fiscal year end and that should mean lesser interest in treasury bills," said a treasurer from one of the leading commercial banks.
The cut-off yields in PIBs have come out higher than the current market yield, which has helped to maintain the earlier spread between PIBs and treasury bills. The banks are apparently comfortable going into PIBs even now, as PIB yields, despite having cooled off, are still lucrative.
That was the core reason why the investors did not heavily participate in the latest T-Bill auction, where the government fetched around Rs67 billion, against the target of Rs100 billion.
The market at large believes the trends are not going to change anytime soon, as the government still needs money.
And with the PIB auction round the corner, there are chances that investors would oversubscribe the amount. Little suggests that the government would not take all what comes its way, especially when it can fetch billions at relatively lower rates.
Where the latest T-Bill auction has deviated from its recent trend is the participation in 12-month paper, which constituted nearly 85 percent of the money raised. It used to be the other way around in the pre rate cut days - another signal that the market anticipates steep rate cuts and the spreads to be constant.
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