KARACHI, Oct 2: Banks, flush with cash, are keenly awaiting the weekend sale of long-term government bonds offering a high-yield, low-risk investment opportunity in the largest auction of its kind in the country.

The planned sale of Rs50bn ($865m) in three-, five- and 10-year Pakistan Investment Bonds over the next few months comes as banks in the South Asian nation struggle to make profits in a low interest rate environment.

The looming issue has already hit stocks, as investors free up cash to buy the bonds, which government officials say they hope will help develop a benchmark yield curve to build a broader debt market.

“It is part of our banking sector reforms to create a vibrant and healthy secondary market,” Ashfaq Hasan Khan, the head of debt management at Pakistan’s Finance Ministry, said by telephone from Islamabad.

The government will also save money, as the new bonds will carry lower interest costs than debt it plans to retire with the cash raised.

In the first phase of the auction on Saturday, the State Bank plans to raise Rs25 billion.

The bank plans to sell Rs5 billion worth three-year bonds, Rs7 billion of five-year bonds and Rs13bn of 10-year bonds. Recent PIB issues have been rated BB-minus by Standard & Poor’s.

With falling yields on existing government paper and few other fixed-interest investment options, the auctions are seen as a major support for the market and will help mop up excess cash from the banking system, analysts said on Thursday.—Reuters