PIBs auction: Slic grabs lion's share as banks choose to sit tight

Very thin participation of banks and other corporates was seen at the first auction of Pakistan Investment Bonds, held after the tightening of Monetary Policy in the third week of May this year. The rise in long-term interest rates was, however, in line with hike in SBP policy rate.
Despite Rs 55 billion of available liquidity on the settlement date ie, June 30th, 2008, banks decided to stay where they were rather than moving away or changing position. As a result, the State Life Insurance Corporation of Pakistan managed to bag a lion's share of Rs 3.55 billion of PIBs - out of total acceptance of Rs 4.259 billion.
The auction results, however, appear to have given some kind of a direction and this may bring stability to the wavered trading of PIBs on the secondary market. The liquidity conditions at best can be described as tight or not very liquid. But it is certainly not a crunch time or a doomsday scenario, said a knowledgeable source.
The government is releasing Rs 30 billion to Oil Marketing Companies on Monday and SBP would also be returning Rs 25 billion to the market, due to maturity of short term T-Bills. The inflow of $2.5 billion in June, from both commercial and government sources, has helped. And, another $2.5 billion are expected by September 2008.
ACCORDING TO A PRESS RELEASE OF SBP, ON THE PIBS AUCTION: The State Bank of Pakistan has set a cut-off yield of 13.4201 percent on the benchmark 10-year Pakistan Investment Bond at an auction on Saturday, up by 1.9707 percent from 11.4494 percent previously. The State Bank has made auction of 3-, 5-, 10-, 15-, 20-, and 30-years long-term investment bonds after three months, as earlier it was held in March 2008.
The central bank received bids worth of Rs 8.259 billion, out of which it accepted Rs 4.259 billion bids of 3-, 10-, 15-, 20-, and 30-years long term bonds, however the bank rejected all bids of five years PIBs. The central bank raised the cut-off yield by 1.6211 percent to 13.6104 percent on the 15-year PIB that earlier stood at 11.9893 percent in the last auction.
For the three-year bonds, the cut-off yield was set at 12.2964 percent from 10.6044 percent, up by 1.692 percent. The central bank also set cut-off yields of 13.9399 and 14.2496 percent for the 20- and 30-year PIBs, compared with 12.1296 percent and 12.4938 percent set in the last auction.