29 May 2004	Saturday	09 Rabi-us-Saani 1425

KARACHI, May 28: Weighted average yield on long-term Pakistan Investment Bonds or PIBs moved up by 41-68 basis points as the State Bank sold about Rs14.86 billion of these bonds at their face value. The sale was closer to the targeted amount of Rs15 billion.

The auction result announced by the SBP showed that weighted average yield on three-year and five-year PIBs rose by 50bps and 41bps respectively to 4.23 and 5.27 per cent from 3.73 and 4.86 per cent in April. The average yield on 10-year PIBs shot up to about 7.13 per cent from 6.45 per cent showing a big increase of 68bps.

The auction result showed that the central bank sold Rs1.85 billion of three-year bonds; Rs3 billion five-year bonds and around Rs10 billion 10-year bonds. The sale volumes were quite in line with the targets set for each tenure of PIBs.

The auction of the bonds had attracted Rs17.65 billion bids of which the central bank accepted Rs14.85 billion and scrapped the rest. Senior bankers say the increase in the weighted average yield on PIBs means the government would not have to make a sharp cut in the rates of return on national saving schemes or NSS.

The half-yearly review of the rates of return on NSS is due in July. Even after the rise of the weighted average yields on three- year and five-year PIBs the rates of return on three-year Special Saving Certificates and five-year Regular Income Certificates are much higher than the same.

As the return on three-year SSCs and five-year RICs is 7.16 and 6.96 per cent there is a gap of 2.93 percentage points and 1.69 percentage points between these rates of return and weighted average yield on PIBs of similar maturity.

Similarly as the return on 10-year Defence Saving Certificates is 7.96 per cent the gap between this rate of return and the weighted average yield on 10-year PIBs is 83bps.

The latest increase of 41-68bps in PIBs yields after a 39bps rise in the cut-off yield on six-month treasury bills on Wednesday clearly indicates that the interest rates have started moving up.

But SBP discount rate which, the State Bank says, is the anchor of its monetary policy remains unchanged at 7.5 per cent since November 2002. The next six-monthly review of the monetary policy is also due in July.