The Treasury Bill auctions went quite well during the first quarter of FY11. Buyers tendered a total of around Rs885 billion, against a pre-auction target of Rs535 billion, of which the government sold papers worth Rs567.7 billion.
Participants in the money market attribute the rise in financing appetite from Treasury Bills to two unsuccessful PIB auctions during the first quarter of FY11, particularly after growing inflationary concerns made long-term bonds a relatively more expensive option.
With investors battered by growing market sentiments that the central bank will increase interest rates, the cut-off yield on all the three tenors of government bills continued to increase during the quarter. For instance, the weighted average yield on the 3-month bill inched up to 12.68 percent in the last T-Bill auction, from 12.09 percent in the very first auction of FY11.
This hike in yields came on the heels of a 50 basis point hike in the discount rate in the last monetary policy announcement along with growing inflationary expectations.
Investors, hit by waves of uncertainty, continued to throng to three-month securities, to reduce the interest rate risk. As evident from the last T-bill auction when participation in the 3-month bill stood at Rs64.2 billion, that in the 12 and 6 month papers paled in comparison with just Rs4 billion and Rs10.6 billion raised from each respectively.
Relatively lower rate on short tenure securities may lure the government to increase the T-bill borrowing target during the second quarter of FY11.
"Given the small PIB auction amount, with high yields the government won be raising any amount from the next two PIB auctions scheduled during the second quarter of FY11", said a money market dealer.
The comparatively petite share of PIB auctions in the portfolio of tools used to finance the national debt can be gauged from the fact that the government is just longing to raise a total of around Rs85 billion from four PIB auctions during 1HFY10.
However, in any case, the T-bill auction target amount during the second quarter will be more than the target set in first quarter as more than Rs590 billion worth of bills are maturing during the second quarter.
Lingering uncertainties over the economic health of Pakistan suggest that even if the discount rate remains unchanged in the upcoming monetary policy due on 29th September, bids in T-bill auctions during the second quarter are expected to remain high as the market is anticipating a hike of 50 to 100 basis points in the discount rate during FY11.