Long-term govt securities: cut-off yields soar to 115bps

KARACHI: The cut-off yields on the long-term government securities rose sharply up to 115 basis points in the auction held Wednesday.

Although the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) had maintained the policy rate unchanged in its last meeting held on March 6, the margins on the government securities continued to surge.

Previously, margin on Market Treasury Bills (MTBs) rose up to 130 bps in the auction held on March 9, 2022. Whereas, the cut-off yields of Pakistan Investment Bonds increased ranging 88-115 bps in the auction held on Wednesday March 16, 2022.

The State Bank on Wednesday conducted auction for the sale of 3-year, 5-year,10-year, 15-year, 20-year and 30-year PIBs and received bids amounting to Rs 588.897 billion with a realized value of Rs 518.477 billion as against target of Rs 100 billion.

The received bids include Rs 159.7 billion for 3-year, Rs 259.589 billion for 5-year, Rs 162.658 billion for 10-year, Rs 3.46 billion for 15-year and Rs 3.49 billion for 20-year long term bonds. However, no bid was received for 30-year period government securities.

The federal government accepted bids amounting to Rs 192.846 billion (Rs 171.169 billion realized value) through sale of 3-year, 5-year and 10-year bonds. While, all bids of 15- and 20-year long term government securities were rejected.

The cut-off yield of 3-year PIBs increased by 115 bps to 11.85 percent up from 10.6998 percent. The borrowed amount was Rs 53.5 billion through 3-year long term bonds. For the 5-year, bids amounting to Rs 80.43 billion were accepted at a cut-off yield of 11.7497 percent, up by 100 bps.

Similarly, the cut-off yield of 10-year PIBs surged by 88 bps to 11.7418 percent as against 10.8600 percent in the previous auction. Some Rs 59 billion were raised through sale of 10-year PIBs.

According to Muhammad Suhail of Topline Securities, huge participation of Rs589 billion was recorded in the PIBs auction against target of Rs100 billion likely due to flattening/inversion of yield curve amid reversal in oil prices & expectation of lower inflation going ahead.

Copyright Business Recorder, 2022