KARACHI: The Pakistan Stock Exchange (PSX) will conduct an auction for GoP Ijarah Sukuk (GIS) instruments on January 23, 2024 with the targeted amount of Rs 100 billion.

The instruments include one year discounted, 3-5 year fixed rental rates (FRR), and 3-5 year variable rental rates (VRR).

The one-year discounted security would act as a zero-coupon bond, with yields determined by the variance between the bid discount and the instrument’s face value.

The GIS-FRR would have a fixed rental rate payable every six months. The Ijarah rental would be based on the cut-off rate.

The GIS-VRR would have a variable rental rate payable every six months. Its Ijarah rental would be based on the benchmark rate (weighted average yield of the six-month T-Bill in the previous auction) and the cut-off spread.

The previous auction held on December 08, 2023, set a target of Rs 30 billion. The PSX received bids worth Rs 478 billion, exceeding the target by over 15x.

Notably, the cut-off yields for the one-year instruments were set at 19.52 percent, 174bps lower than the prevalent secondary market yields at the time.

Over the past month, secondary market yields have come off by around 100bps for short-term tenors and around 50bps for longer tenor securities.

Yields of 19.5 percent witnessed at the previous PSX auction are slightly below conventional and Shariah-compliant fixed-income instruments. The yields, however, exceed returns offered by national savings certificates and Roshan Digital Account.

“The upcoming auction may see yields fall even further as secondary market yields have come off by 50bps,” an analyst at BMA Capital said, adding that general interest in the auction is likely to remain elevated because of limited options for Shariah investments.

Copyright Business Recorder, 2024