RIZWAN BHATTI

KARACHI: The federal government Wednesday rejected all bids for long-term investment bonds squashing the market anticipation of higher interest rate. Analysts said banks were very cautious in the auction and submitted bids averaging 3-15 basis points higher than the previous auction. "As the received bids were less than the target and the cut-off yield was higher than last auction, the government decided not to borrow through Pakistan Investment Bonds (PIBs) and accordingly all bids were rejected," they added.

They said the government has taken a right decision as presently there is no need to change the cut-off yields, which stood at a reasonable level. They said that on Wednesday, most of the bids were submitted with higher margin compared to previous auction and secondly, bids were not meeting the government's tentative borrowing target of Rs 100 billion set for this auction.

A few bids of 3-year bonds were submitted at a cut-off yield of 6.19 percent, while the remaining bids were also higher than the current level. The cut-off yield of 5-year long-term bonds began from 6.80 compared to 6.70 percent of the last auction, they added. As per the announcement, the State Bank conducted the auction for PIBs for 3-, 5-, 10-, and 20-year maturity on October 19, 2016 to raise some Rs 100 billion for the federal government to meet its financial requirements.

Overall, the participation in the auction was very thin as the SBP received bids amounting to Rs 73.725 billion with realised value of Rs 75.02 billion for the sale of 3-year, 5-year and 10-years long-term government papers, however no bid was received for 20-year PIBs. Similarly, most of the bids were received for 3-year, which fetched bids amounting to Rs 62.15 billion. Some Rs 9.65 billion bids were submitted for 5-year and Rs 1.925 billion for 10-year.

In the last auction for PIBs held on September 21, 2016, the federal government borrowed some Rs 219.152 billion through the auction of 3-, 5- and 10- year bonds at a cut-off yield of 6.1970 percent, 6.7010 percent, 7.7995 percent, respectively. The borrowed amount in was much higher than the tentative target of Rs 100 billion.