Within target limit! government raises Rs 50 billion in MTBs auction

23 Oct, 2014

Contrary to previous trend, the federal government Wednesday accepted Pakistan Investment Bond's (PIB) bid under the target. In Wednesday's auction, out of total received bids, the federal government accepted bids worth Rs 50.327 billion with a realised value of Rs 49.562 billion against the target of Rs 50 billion.
For the last few months, the government borrowing through long-term investment bonds is on rise and in the last auction held on September 10, the federal government raised some Rs 152.5 billion through the auction of PIBs against target of Rs 100 billion. The government borrowed some Rs 883 billion in the last quarter of FY14 through the auction of PIBs relative to target of Rs 300 billion and in March this year, for the first time in the history of the country, the federal government raised ever-highest Rs 530 billion through a single auction of long-term government bonds against the auction target of Rs 60 billion
However, on Wednesday the federal government changed its attitude and borrowed within the target limit. The federal government's current borrowing trend is different and despite banks' aggressive participation of over Rs 329 billion, it borrowed Rs 50 billion.
Analysts said that higher participation in the PIBs auction reflects that banks want to park their liquidity at higher rates for long-term period. Lower acceptance by the federal government is due to lower demand of funds, they added. "With lower acceptance, government has also conveyed a clear message to banks that it will not raise the cut-off yield of long-term investment bonds. For the last few auctions, Market Treasury Bills also failed to attract banks due to higher PIBs cut-off yield," they said and added that now we are expecting a massive input in short-term papers as well.
Auction for PIBs of 3-year, 5-year, 10-year and 20-year tenors was conducted by State Bank of Pakistan (SBP) on October 22, 2014 which fetched bids amounting to Rs 331 billion with a total realised amount of Rs 329.4 billion. Some Rs 249 billion worth bids were received for 3-year, Rs 51.887 billion for 5-year and Rs 30.4 billion for 10-year, while no bid was submitted for 20-year long-term bond.
The cut-off yield of all bonds is almost the same and a cut-off yield of 12.4803 percent was set for 3-year PIBs, down from 12.5934 percent, with borrowing amount of Rs 20.3 billion with realised amount of Rs 49.562 billion. An amount of Rs 19.733 billion (realised amount) was raised from the 5-year long-term investment bond at a cut-off yield of 12.9970. Similarly, a cut-off yield of 13.4494 percent was set for 10-year PIB with an amount of Rs 9.886 billion. Bankers said higher participation in PIBs reflects that banks have massive liquidity, besides it shows confidence of local participants such as banks, NBFIs and corporate in the economy.

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