KARACHI: Cut-off yields in the auction of treasury bills on Wednesday dropped by up to 68 basis points while the State Bank of Pakistan (SBP) raised Rs729.29 billion.

The T-bills auction — the first after the monetary policy announcement on Jan 24 — witnessed a significant decline in the cut-off yields, apparently due to no change in the policy rate.

The biggest cut in the rate was noted in the benchmark six-month tenor, as its yield was slashed by 68 basis points to 10.69 per cent while the amount raised was Rs130bn.

The highest amount of Rs489.28bn was raised for the three-month paper, which saw a reduction of 15 basis points in the cut-off yield to 10.29pc.

Govt raises Rs729bn exceeding auction target

The amount raised for the 12-month paper was Rs110bn while the cut-off yield on the tenor decreased by 57 basis points to 10.92pc.

The government raised a total of Rs729.28bn against the target of Rs650bn while the overall bids for the three tenors were Rs2.259tr. The government also raised Rs95.352bn as non-competitive bids, making the total amount to Rs824.6bn.

State Bank of Pakistan (SBP) Governor Dr Reza Baqir while announcing the monetary policy on Monday said that since the last meeting on Dec 14, both short- and long-term secondary market yields, benchmark rates and cut-off rates in the government’s auctions declined significantly in line with the forward guidance provided by the monetary policy committee and the conducting of two-month open market operations (OMO) by the SBP.

Due to increased spreads between the policy rate and cut-off yields, the SBP conducted a 63-day OMO on Jan 1, as this option always remains available to the SBP to dictate the secondary market.

After Monday’s monetary policy statement, yields on treasury bills and Pakistan Investment Bonds (PIBs) came down sharply by 25 to 30 basis points in the secondary market the next day amid hopes that a further increase in the policy rate may not happen in the near term.

The government also raised Rs163.55bn through PIBs, for which the auction was held the same day. The government accepted Rs10bn out of Rs17bn bids for the two-year bond while it accepted Rs153.55bn for the three-year bond. The government also raised Rs1.425bn non-competitive bids, making the total amount to Rs164.975bn.

The government relies heavily on these two papers — treasury bills and PIBs — for its borrowing needs. However, in the wake of an agreement with the International Monetary Fund, the government can’t borrow from the State Bank without stringent procedures.

Published in Dawn, January 27th, 2022

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