PIBs auction receives thin participation

A thin participation was witnessed in the auction of Pakistan Investment Bonds (PIBs) as overall bids worth Rs 77 billion were received as against the target of Rs 100 billion. However, the cut-off yield of all bonds has slightly increased up to 28 basis points (bps).
The State Bank of Pakistan on Wednesday conducted the first auction of PIBs for 3, 5, 10, and 20 years maturity with coupon rates as 11.25 per cent, 11.50 per cent, 12.00 per cent, and 13.00 per cent respectively with the settlement date of July 17, 2014. The first auction of the FY14 fetched overall bids worth Rs 76.9 billion with realised value of Rs 74.257 billion for sale of 3-year, 5-year, 10-year and 20-year long-term investment bonds.
Bids worth Rs 47.289 billion were received for 3-year bonds, Rs 11.64 billion for 5-year, Rs 13.23 billion for 10-year and Rs 2.09 billion worth bids for 20-year PIBs. Overall the federal government borrowed some Rs 58.221 billion bids with total realised amount of Rs 56.152 billion through the auction of PIBs. The target for the auction was Rs 100 billion.
Bids worth Rs 32.247 billion were accepted for the 3-year investment bond and its cut-off yield set at 12.3834 per cent up from 12.0970 per cent in the previous auction. Similarly, with an increase of 25 basis points a cut-off yield of 12.8015 per cent was set for 5-year PIBs and its accepted bids stood at Rs 9.928 billion. Some Rs 11.88 billion bids were accepted for 10-year bonds at a cut-off yield of 13.2002 per cent up by 20 bps. The cut-off yield of 20-year PIBs inched up by 11 bps to 13.1125 per cent.
There was a little interest in the PIB auction by the banks with only bidding of Rs 77 billion against a target of Rs 100 billion and the current trend of auction is against the market expectation, analysts said. They said that the market is reluctant to invest in the long-term bonds due to monetary policy announcement on Saturday. In the last PIB auction held on June 18, 2014, some Rs 217 billion bids were received as against the target of Rs 100 billion and the federal government raised Rs 216.38 billion.