12 November 2004	Friday	28 Ramazan 1425

KARACHI, Nov 11: The State Bank on Thursday refused to increase the yield on long-term Pakistan Investment Bonds to the levels desired by the market.

The auction generated Rs1.825 billion bids against the target of Rs3 billion, but it had to reject all the bids because the market demanded much higher yields than set in the last auction.

The market demanded a 5.5-6.5pc yield on three-year bonds and 6.5-7.5 per cent on five-year bonds. In the last auction held in May this year, the weighted average yields on three-year and five-year PIBs were 4.23 per cent and 5.26 per cent, respectively.

The market also demanded a 7.75-8.5pc yield on 10-year bonds, much higher than their last weighted average yield of 7.13pc.

Since the central bank was in no mood to raise the yields on the long-term government bonds to these levels, it scrapped all the bids.

This is for the third time that the SBP has scrapped the PIBs auction to avoid raising yields to the levels demanded by the market.

Senior bankers say the reason for a much smaller participation of the market in the PIBs auction was that corporates were least interested in these bonds at their current yields. They said the higher yields demanded on these bonds by the primary dealers, or the banks and other institutions that sell them on behalf of the central bank in the secondary market, indicate that the market is projecting a much faster increase in the interest rates than seen so far during this fiscal year.