August 03, 2006	Thursday	Rajab 7, 1427

KARACHI, Aug 2: The State Bank on Wednesday increased yields on treasury bills but received poor response as the market was expecting still higher returns on treasury papers.

The central bank picked up Rs6.2 billion against the pre-auction target of Rs38bn as the rates offered by the dealers were higher than the SPB plan for increase. It received total bids of Rs24.199bn.

This was the first auction of T-bills after the increase in discount rates. Market experts had already predicted the rise in T-bills rates.

“The market reaction was not unrealistic when bidders asked for higher rates and the SBP refused most of the bids,” said Chief Dealer at JS and Company Salman Jafri.

The SBP raised the cut-off yield of 6-month T-bills by 32 basis points to 8.814 per cent and bought only Rs239 million.

Highest amount of Rs5.932 billion was raised for 3-month papers and cut-off yield was raised by 31 basis points to 8.6417 per cent. Smallest amount of Rs91 million was raised for 12-month bills while the cut-off yield was increased by 21 basis points to 9.0046 per cent.

Analysts said that the impact of discount rate increase by 50 basis points would be reflected in all the debt instruments. They said the banks were cautious and tested the SBP by offering bids with higher return. The market did not know how much elasticity the SBP had for the increase of cut-off yields on t-bills.

The market would receive an inflow of Rs39bn on Thursday. Analysts said that the SBP could raise the excess liquidity thorough OMOs but this time the central bank may not punish the banks.