KARACHI, June 9: The State Bank on Wednesday raised the yields on Pakistan Investment Bonds of fifteen and twenty years but kept them almost at par with their coupon rates.

The SBP raised the weighted average yield by 120 basis points on both 15-year and 20-year PIBs to 8.9 and 9.9 per cent from 7.7 and 8.7 per cent respectively. The fixed coupon rate is 9 per cent for 15-year and 10 per cent for 20-year bonds.

By hiking the yields on the PIBs closer to their coupon rates the SBP has signalled that it is ready to make upward adjustment in interest rates but would not let them rise too fast. To give this signal to the market the central bank had to sell these bonds in a small quantity.

The SBP sold Rs1.872 billion worth of these bonds at Wednesday auction against the total demand of Rs13.25 billion. The central bank also managed to sell about Rs211 million of these bonds to smaller institutions that do not directly participate in the PIBs auction.

Primary dealers or the banks that sell the government securities on behalf of the SBP had also sold Rs5.15 billion of these bonds in the secondary market. When the three figures are added up the total sale of 15 and 20-year bonds comes to Rs7.233 billion. But this is only one quarter of the targeted sale of Rs30 billion.

Whereas the State Bank sold a lesser than the targeted amount of PIBs to keep their yields from rising too fast the demand for the bonds was also low due to lack of buying interest of corporates.

Senior bankers said large insurance companies including State Life Insurance Corporation that are traditional buyers of longer term bonds did not make any significant buying of PIBs in Wednesday auction.

"One reason could be these companies are anticipating a further rise in the PIBs yields," said treasurer of a local bank. The SBP sources said one of the reasons why major corporates did not make sizable buying of Pakistan Investment Bonds was that their bankers failed to market these bonds properly.