KARACHI, June 23: Insurance companies that were not so keen on making more investment in Pakistan Investment Bonds seem set now to participate with renewed zeal in the next auction of the bonds by the month-end.
“We will be participating in the PIBs auction quite reasonably because the target is so big and the yield is likely to improve,” said a senior official of a large insurance company. “Before the announcement of the Rs30 billion target for the bonds auction we were planning not to participate too aggressively but now things have changed.”
The official was referring to a clever market-based move made by the government and the State Bank to renew investors interest in the long-term bonds by setting a large sale target. This big target—bigger than the actual amount of money raised through these bonds in the current fiscal year—is sure to improve their yield—and that in turn would enable the government to contain an inevitable fall in the rates of return on the national saving schemes (NSS).
Bankers say corporate buyers of the bonds including state-run State Life Insurance Corporation and other insurance companies have shown interest in the upcoming auction on June 28.
“We anticipate total participation up to Rs60 billion in the bonds auction,” said treasurer of a primary dealer bank—the one that sells government securities in the secondary market on behalf of the State Bank. He said participation would be much larger than the targeted amount because the market knows the government is set to improve the yield on the bonds—and also because there is a lot of liquidity available in the market.
He said the inter-bank market was liquid by not less than Rs20 billion on Monday adding that another Rs10 billion would flow in on Tuesday through maturity of the T-bills auctioned in an open market operation last week. The banker said the market would get about Rs19.5 billion by weekend through pre-payment of loans by state-run Pakistan Steel and Karachi Electric Supply Corporation.
Executives of insurance companies that have traditionally been major buyers of PIBs say before the announcement of the auction target they were planning to make more investment in stocks but now bonds seem more preferable. “We still have interest in stocks and may buy some blue chips but our interest in the bonds is up,” said a senior executive of an insurance company whose investment portfolio is dominated by PIBs.
The Karachi Stock Market 100-share index gained 37 points more on Monday to close around 3345 and stock brokers say the index may test 3500 level before showing any signs of recession. That is why many institutional investors are out on a shopping spree in the humming equities market.
“But the stage set for the PIBs auction will just balance the investors appetite for stocks by diverting it a bit towards the bonds,” said a bank treasurer.
He said the PIBs are in high demand before the auction adding that the 10-year bonds are currently trading at 5.70-5.80 per cent; five-year bonds at 4.10-4.40 per cent and three-year bonds at 3.50-3.75 per cent.
TBs Auction: The SBP has invited bids for the last auction of treasury bills of this fiscal year. The sale target is only Rs2 billion for the auction to be held on Tuesday and Wednesday.
