The State Bank of Pakistan (SBP) is likely to set the target of Rs 15 billion in the upcoming auction of treasury bills where most of the participation is expected in three-month and one-year bills.
The money market week ended on a tight note with Rs 180 million worth of discounting taking place on July 14. The week started off liquid, with overnight repos trading as low as 3.5 percent during the week while the bulk of trading was witnessed in the 6.5 percent to 7.5 percent range.
The short term yield curve slipped slightly during the week with one-, three-, and 6-month repos trading at 8.08 percent, 8.28 percent, and 8.41 percent respectively, at the end of the week, against previous week''s levels of 8.19 percent, 8.31 percent, and 8.52 percent, respectively.
The SBP conducted Open Market Operations (OMOs) on three occasions during the week in order to mop up excess liquidity.
Salman Jafri, fixed income dealer at JS Capital Ltd, said in a report that a large volume of OMO maturities would flow back into the market on July 20 totalling Rs 67.7 billion. In addition, Rs 14 billion of Treasury Bills would also mature on July 20, bringing total inflows on that date to approximately Rs 76.8 billion.
The SBP is expected to announce an auction of Treasury Bills on July 17 for settlement on July 20 and pick up the inflows via sales of Treasury Bills. The pre-auction target is likely to be in line with that of maturing T-bills ie Rs 14 to 15 billion.
Participation in the auction is likely to be heavy, keeping in view the excess liquidity situation prevalent in the market. "We expect the bulk of participation to target the 3-month and 12-month T-bills. Mop up OMOs of up to two weeks maturity are expected subsequent to the auction to dry up any excess liquidity."
The JS PGBI, which is the primary indicator of Pakistan Bond Markets, showed an increase of 0.0288 points over the week, bringing the index value to 89.2803 with a weighted index yield of 9.5713 percent on July 15, 2006. The JS PGBI has shown an overall decrease of 10.7197 percent since its inception on July 1, 2004 and has fallen 1.4018 percent since December 31, 2005.
Last week the 10-year yield fell to 9.82 percent from previous week''s level of 9.85 percent; the 5-year yield fell to 9.64 percent from 9.66 percent, and the 3-year yield fell to 9.35 percent from previous week''s level of 9.39 percent. The State Bank of Pakistan conducted the first successful auction of Pakistan Investment Bonds on May 18, 2006, after two years of non-issuance by the Government.
Cut-off yields for 3-, 5-, and 10-year PIBs rose to 9.4515 percent, 9.6674 percent, and 9.8746 percent, respectively, from levels of 4.3506 percent, 5.3492 percent, and 7.3698 percent.
In the period since the auction, trading volume has fallen off to negligible levels. This is due to the fact that a large portion of the freshly issued bond holders resides in corporate sector inventories and is unlikely to be traded since the corporate sector typically holds instruments to their maturity rather than actively trading in them.
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