KARACHI, June 28: The State Bank of Pakistan increased the cut-off yields on Pakistan Investment Bonds (PIBs) on Saturday, reflecting the impact of last month’s increase of interest rates which pushed the discount rate to 12 per cent.
However, despite creating attraction for investing in PIBs, the response was poor while the State Bank picked up much lower amount which is supposed to be an alternative window of borrowing for the government other than the SBP.
The cut-off yield on benchmark 10-year bond was set at 13.42 per cent against the previous cut-off yield of 11.44 per cent, showing an increase of 1.98 per cent.
Brokers said this big jump in the benchmark 10-year bond was a good attraction but the response was not up to the expectations of the SBP. The SBP sold PIBs of 10-year for Rs565.5 million.
The SBP has been advising and advocating the sale of PIBs on larger scale to make it an alternative borrowing for the government instead of relying heavily on SBP. There is no match between the figures of borrowing through PIBs and SBP as the government borrowed over Rs651 billion from SBP till mid of this month.
“Despite attraction of very high cut-off yield, tenure of benchmark bond is 10 years which is not suitable for investors in Pakistan as over 80 per cent money is being kept at a period less than one year,” said a bond dealer.
He said the planned three, six- and 12-month new government papers would be more attractive for investors as rates would be reviewed after three months and investors would have a choice to engage money for a shorter period compared to PIBs.
“The increase in cut-off yield was expected after 1.5 per cent increase in the discount rate last month,” said the broker, adding the discount rate increase has changed the scenario for investors as they are looking for higher returns.
The shortest tenure was thee-year PIB whose cut-off yield was increased by 1.69 per cent to 12.29 per cent but the amount the SBP collected was just Rs3.7 million. The SBP rejected all bids for five-year PIBs.
The SBP set cut-off yield for 15-year PIBs as 13.61 per cent which was increased by 1.73 per cent compared to previous cut-off yield. The SBP collected Rs933.9 million against the sale of 15-year PIBs.
The highest amount of Rs1.332 billion was received against the sale of longest tenure 30-year PIB of which the cut-off yields was increased by 1.75 per cent to 14.24 per cent.
The 20-year PIBs were sold for Rs933.9 million at a cut-off yield 13.93 per cent.
The cut-off yield was increased by 1.81 per cent.
“In the wake of current borrowing trend set by the government, it looks that the auction of PIBs will not help the government meet even a partial requirement of its expenditure plan in next budget,” said an analyst.
The PIBs were introduced in 2000 and since then the auction remained limited to small amount. Analysts said that under the current instable political situation long term investment has no chance to attract money.
