KARACHI: The cut-off yields on the treasury bills (T-bills) were increased significantly by up to 130 basis points on Wednesday.

The yields on all three tenors were increased just a day after the State Bank of Pakistan (SBP) left its policy rate unchanged at 9.75 per cent.

In the wake of the high maturity amount the government had set an auction target of Rs1 trillion but could raise Rs951bn as it received total bids of Rs1.01tr.

Experts said the banks knew the government’s requirements due to the maturity amount of Rs1.11tr and they played with higher bids which compelled the government to raise the cut-off yields.

Auction target was set in view of high maturity amount

The cut-off yield for 12-month papers was increased by the highest 130bps to 12.30pc in the auction. For three- and six-month papers the yields were increased by 96bps and 121bps to 11.45pc and 12.10pc, respectively.

The amount raised for three, six and 12-month T-bills were Rs511.14bn, Rs255.8bn and Rs143bn, respectively, while an additional amount of Rs41.53 was raised through non-competitive bids.

“This is an unexpected rise in t-bills returns just one day after SBP held its policy rate unchanged. It clearly shows that the government is desperate and expects further tightening due to rising global commodity prices and fiscal slippages,” said Mohammad Sohail, CEO of Topline Securities.

Analysts believe that if the Russia-Ukraine war prolongs it could create serious imbalances for the global economies but Pakistan would suffer more than the rich countries.

“The T-bills yield increased in the auction as the participating amount was close to the target. Banks were reluctant to participate at existing yields and went higher to cover for the uncertainty in commodity markets which might affect interest rates and exchange rates in future,” said Samiullah Tariq, head of research at Pak-Kuwait Investment and Development Company.

The SBP in its monetary policy statement indicated that the rates could be revised upwards if the situation changes with a global commodity price hike.

BONDS: The government raised Rs114.46bn through the auction of Pakistan Investment Bonds. It raised Rs30bn for two-year and Rs82.25bn for three-year. In addition to it, Rs2.21bn was raised through non-competitive bids.

Published in Dawn, March 10th, 2022