KARACHI, Oct 24: Rates of Treasury Bills and Pakistan Investment Bonds fell significantly in the secondary market in anticipation of a further cut in the interest rate in December, market sources said.

The treasury bills were traded in the secondary market at the rates much below the rates set in the last auction held on Oct 18. Secondary market is a strong indicator of the monetary policy.

Also short term maturity papers were traded at the 10-year record low rate on Wednesday, another indication of the market sentiment that sees further fall in the discount rate.

In the first week of this moth, the State Bank announced monetary policy and introduced 50 basis point cut in the discount rate which settled at 10 per cent per annum.

Dealers said T-bills for one year maturity were traded at 20 to 25 basis points less than the auction rate. The first auction of t-bills after monetary policy set a cut off yield of 9.63 per cent for 3-months, 9.64 per cent for six months and 9.69 per cent for 12-months.

“The 12-month t-bills rate fell by 25 basis points in the secondary market on Wednesday as we traded the paper at a rate of 9.40 to 9.50 per cent,” said S S Iqbal, a dealer in the secondary market.

He said the six-month t-bills were traded at 10 to 15 basis points less than the auctioned rates while the three-month bills saw a slight downward trend.

“Rates are falling since the market feels that the coming months would see another cut in the discount rate and this is the reason that short term maturity papers were traded at record low,” said the dealer.

The short term means the papers to be matured in a week or month. The short term maturity paper of one week was traded at 8 per cent while that of one month was traded at 8.75 per cent.

Another trader said that short term paper rates were lowest in the 10 years record, indicating a change already infused in the market.

At the same time, rates of Pakistan Investment Bonds also fell. The coupon rates for 3-year, 5-year and 10 year PIBs were announced as 11.25 per cent, 11.50 per cent and 12 per cent, respectively.

The dealers said the PIBs of 3, 5 and 10 years were sold at 11.32 per cent, 10.77 per cent and 10.10-25 per cent, respectively.

“The weak rates of government papers and treasury bills indicate a change in the market that will certainly influence the policy interest rate in December. This is significant that market reflects a change which could be materialised after one and a half months,” said research head of a brokerage house.

Another dealer said the short term paper rates do not reflect the real situation as it fluctuates with the market liquidity and currently the market has enough liquidity since the State Bank injected Rs146 billion on Tuesday.

He, however, said fall in t-bills and PIB rates reflects the change in the market.

Updated Oct 25, 2012 12:30am

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