Amid limited investment avenues for commercial banks and lucrative rates being offered by government papers, a high level of market participation in treasury auctions is inevitable. However, whats new in recent treasury auctions is that the market demand for the 6-month paper shows improvement.
With market participation crossing Rs300 billion, the government sold around Rs174 billion worth of T-bills in the fifth T- bill auction of the quarter, held two days back, in keeping with a pre-auction target of Rs170 billion.
The auction drew a bid to cover ratio of 1.76 as against average 1.54 for the past four auctions held since the start of the quarter.
Driven by improved market sentiments regarding the key discount rate, which is expected to remain stable in the next monetary policy, the auction attracted around 36 percent of the participation (in terms of face value) in the 6-month paper, up from an average of 17 percent in the past four auctions held since the start of current quarter.
At the same time, participation in the 3-month paper declined to 53 percent from around an average of 76 percent.
Nearly 99 percent of bids (value) placed in the 6-month paper were made at the yield below or equivalent to the 6-month cut-off yield in the previous treasury auction.
Therefore, by keeping cutoff yield unchanged at 13.68 percent, the government virtually accepted all of the bids placed for the 6-month paper.
This helped the government borrow less through the 3-month paper, bringing down the ratio of the total amount of funds raised from 3-month to 20 percent from around an average of 70 percent in the past four auctions.
Although the lowest bid placed on 3-month paper was close to the lowest bid placed in the previous auction, the cut-off yield on the 3-month bill reduced by 9 bps to 13.39 percent as lesser funds were collected from 3-month paper.
The investors interest in the 12-month paper also improved, but its appetite still stands lower than the short-tenure papers.
"Real participation in the 12 month paper will be seen when the market feels that the interest rate has peaked out," one money market dealer said, adding that at present, chances look slim that the interest rate will decelerate before the end of the current fiscal year.

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T-bill 3Q participation
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            3-month    6-month   12-month
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11 Jan        87%         8%          5%
25 Jan        87%         8%          5%
08 Feb        64%        27%          9%
22 Feb        68%        24%          8%
08 Mar        53%        36%         12%
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Source: SBP
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