Yields fall, bids rise in T-bill auction

Updated April 09, 2020

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Since foreign investment has almost stopped, majority of the bids were made by domestic investors and local banks. — Reuters/File
Since foreign investment has almost stopped, majority of the bids were made by domestic investors and local banks. — Reuters/File

KARACHI: The government on Wednesday raised Rs495 billion through the auction of treasury bills as cut-off yields were slashed by 122 basis points for 12-month papers.

The government remained within its auction target of Rs500bn despite attracting bids worth Rs1.914 trillion.

Since the foreign investment has almost stopped, majority of the bids were made by domestic investors and local banks. The banks have large liquidity as the lockdown in the country due to COVID-19 pandemic has reduced borrowing needs of the trade and industry sectors.

The government raised the highest amount Rs160bn in 12-month papers with cutt-off yield for the tenor falling by 122bps. The rate of return for these papers fell to 9.65 per cent.

The large interest in the long-term papers was surprising as investors bid the highest amount of Rs860bn for the 12-month papers. This likely indicates that banks are anticipating another rate cut in the coming months.

The central bank slashed the interest rate twice in March by 2.25 per cent to 11pc but trade and industry leaders think the cuts could have been deeper as most of the developed and developing countries have brought down policy rates to support economic growth.

The government raised the smallest amount of Rs143bn in six-month papers at the rate of 10.30pc. The cut off yields for the six-month paper declined by 100bps whereas the bids were Rs586.9bn.

The three-month papers also attracted a large number of bids as the government raised Rs156bn from the short-term papers with a reduced cut-off yield of 10.90 per cent; a fall of 40bps from the last auction. The bids for this tenure were Rs466.9bn.

The trend shows that the investors have been closely watching the impact of coronavirus which has brought the economic engine to a standstill.

Published in Dawn, April 9th, 2020