Six-month Treasury Bills cut-off yield rose slightly to 1.7244 percent from 1.7193 percent, which helped the State Bank of Pakistan in mopping up large part of the liquidity from the market.
Against the market bid of Rs 36.26 billion, the SBP picked Rs 29.56 billion, while its given target was Rs 15 billion.
During the last 10 weeks Treasury Bill worth Rs 75 billion have matured but the central bank has not succumbed to market demand of raising T/bills rates in its fortnightly auction, and rejected higher bids. Had SBP adhered to the auction target of Rs 15 billion it would have to lower the yield which would have also given a wrong signal that the central bank wanted the rates to dip.
Thus SBP auction clearly indicates that the lending rates have bottomed out, but SBP wants these rates to remain stable at current levels until the international rates start inching up.
Mopping up of larger than target amount would provide breathing space to market participants as well as to the SBP, since Rs 42 billion T/bills will be maturing on February 19.
Three-month and one-year treasury bills auction is due on Thursday.
The rupee market is expected to remain tight until next week, as Rs 10 billion will be maturing on February 13, while another Rs 2 billion PIB is due to mature on February 14. Dealers estimate that before the T/bill auction, market was long by Rs 6 billion.
"Accepting more than the target amount certainly helps the cause due to excess liquidity in the market, since we were trading overnight in a range between 25 basis points and 50 basis points, while market''s only hope was largely dependent on Open Market Operation (OMO)," said a money market dealer of a foreign bank.
A leading primary dealer said, "Current liquidity is forcing corporate sector to invest funds in 10-year bond, which is gradually pushing the yields.
Since last one-month, 10-year bond has gained 10 basis points to trade at a two-month high yield of 6.24 percent. The demand for bond is likely to persist and is expected to make continued small gains unless we hear the next announcement".

Copyright Business Recorder, 2004

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