Margin on PIBs soars

Margin on the long-term investment papers surged up to 21 basis points (bps) in the auction held Wednesday. Bankers toldBusiness Recorder that, after a gap of three months, the federal government borrowed some Rs 39 billion through the auction for Pakistan Investment Bonds (PIBs) as previously, all bids were rejected in the last three auctions held in the second quarter (Oct-Dec) of this fiscal year.
Mainly, the SBP conducts one PIB auction every month to borrow funds for the federal government, however the federal government didn't borrow a single penny in three auctions held during Oct-December 2016 as banks were seeking higher margins.
According to State Bank of Pakistan, auction for the sale of long-term government securities of 3-, 5-, 10-, and 20-year maturity was held on January 25, 2017 with coupon rates at 7.00 percent, 7.75 percent, 8.75 percent and 10.75 percent, respectively.
Banks aggressively participated in the auction for PIBs and overall, bids amounting to Rs 134.470 billion or total realised amount of Rs 137.893 billion were received for 3-, 5- and 10-year PIBs. However, no bid was received for 20-year variety. Bids amounting to Rs 82.442 billion were received for 3-year, Rs 34.577 billion for 5-year and Rs 20.874 billion for 10-year long-term bonds.
Overall, bids amounting to Rs 38.338 billion (Rs 39.396 billion total realised amount) were accepted for 3-, 5- and 10-year long-term government securities. The borrowed amount is lower than the tentative target of Rs 50 billion set by the federal government for this auction.
A cut-off yield of 6.4074 percent, up 21 bps, was fixed for 3-year long-term bonds with accepted bids of Rs 28.986 billion (total realised value). The cut-off yield of 5-year PIBs surged by 20 bps to set at 6.8998 percent up from 6.7010 percent and its accepted amount stood at Rs 10.409 billion. An amount of Rs 1.061 million was borrowed through the auction for 10-year long-term government papers and its cut-off yield was fixed at 7.9414 percent, up by 14 bps.