December 6, 2003	Saturday	Shawwal 11, 1424

KARACHI, Dec 5: The State Bank on Friday sold Rs13.675 billion Pakistan Investment Bonds as the third instalment of a Rs50 billion jumbo issue. Total realized value of the sold bonds comes to Rs15.14 billion.

In October and November, the central bank had sold Rs7.9 billion and Rs 26.6 billion PIBs out of this issue. The sales of around Rs13.7 billion bonds on Friday brings the total sales to Rs48.2 billion. Add to it Rs945 million of these bonds sold to retail investors in three instalments and the sales figure rises to roughly Rs49.15 billion — only slightly less than the pre- announced target.

When the central bank had first announced the jumbo issue of Rs50 billion in September this year it had set a monthly sales target of Rs25bn, Rs15bn and Rs10bn for October, November and December, respectively.

But in the very first auction of the jumbo issue of PIBs held on October 4, the SBP had ended up selling only Rs7.6 billion bonds against the demand of Rs36 billion. The reason was that it wanted to keep the PIBs yield stable and did not want the market to misread a hike in the bond yields as a prelude to tightening of its monetary policy.

In the second auction held on November 5, the SBP again kept the yields stable but this time it managed to sell Rs26.6 billion bonds against the demand of Rs44 billion.

When the central bank had first sold only Rs7.6 billion bonds in October against the target of Rs25 billion — and against the demand of Rs36 billion the move had invited criticism from the bankers who felt strongly against the slippage of the auction target. But in the next auction held in November, the central bank sold Rs26.6 billion bonds against the monthly target of Rs15 billion, thus meeting part of the leftover targeted sales volume.

And in Friday’s auction, it again sold PIBs in excess of the monthly target — again to meet the overall quarterly target of sales volumes. Bankers say this shows the SBP’s willingness to honour the auction targets of government bonds and securities — a key yardstick to judge the fairness of a central bank in conducting daily affairs.

On Friday the SBP sold Rs2 billion worth of three-year PIBs and Rs3.6 billion worth of five-year bonds at a cut-off yield of 3.95 per cent and 5.01 per cent, respectively. The three-year and five-year bonds carry a coupon rate of six per cent and seven per cent, respectively. Their sale at below coupon rate is due to their high demand in the backdrop of low interest rate environment.

The central bank also sold Rs8.075 billion worth of 10-year PIBs at a cut-off yield of around 6.23 per cent. These bonds carry a coupon rate of eight per cent.

In total the SBP sold Rs13.675 billion PIBs of three-year, five-year and 10-year against the demand of Rs38.581 billion.