In an endeavour to reduce borrowing from the State Bank of Pakistan for its budgetary needs, Ministry of Finance, on Wednesday, once again accepted bids nearly three times the auction target for Pakistan Investment Bonds (PIBs). The auction target was Rs 50 billion but MoF decided to accept offers worth Rs 141.7 billion in face value and in the process raised the cut-off by 30 to 40 basis points (bps).
Banks that were faced with a cut in the discount rate by 50 bps were very happy to oblige; however, in the process, the bond market received a severe setback. With CPI or inflation expected for the current month at five (5) percent and SBP''s policy rate at 9.5 percent, the yield in 10-year investment was 11.99 percent, ie, nearly 250 bps greater than the discount rate.
Knowledgeable sources are perplexed at the finance ministry''s handling of the auction process. All MoF needs to do is adhere to the target and in the next auction the rate would come down. Since Wednesday''s PIB auction was the last auction before the recommendation for release of 1.1 billion dollars to Pakistan by the Executive Board of the IMF, these sources felt that there was no earthly reason for such a bizarre behaviour other than bringing the NDA of SBP down closer to the agreed target with the Fund staff. According to SBP press release of the auction results: "Auction of Pakistan Investment Bonds for 3, 5, 10, and 20 years maturity was held on November 19, 2014 with coupon rates as 11.25%, 11.50%, 12.00%, and 13.00% for 3, 5, 10 and 20 years maturity respectively and settlement date of November 20, 2014. The bid summary for 3, 5, 10 and 20 years maturity is as following:
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(Amount in PKR million)
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Tenor Face Value Realized Amount Accrued Interest Total Realized Price Range
Amount (per Rs 100)
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03 Years 74,658.400 76,006.938 2,899.405 78,906.343 102.40 - 99.95
05 Years 26,942.500 27,700.844 1,069.580 28,770.424 103.58 - 100.85
10 Years 52,664.000 53,511.491 2,181.588 55,693.079 103.44 - 98.46
20 Years 500.000 508.300 16.740 525.040 101.66
Total 154,764.900 157,727.573 6,167.313 163,894.886
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Out of the above bids, the accepted bids were as under:
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(Amount in PKR million)
Tenor Face Value Realized Accrued Total Realized Cut-off Price Cut-off Yield Effective
Amount Interest Amount (per Rs 100) (YTM) Weighted
%p.a. Average Yield
%p.a.
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03 Years 68,248.400 69,554.298 2,650.469 72,204.767 100.76 10.8986 10.3944
05 Years 25,942.500 26,692.344 1,029.882 27,722.225 101.39 11.1003 10.6878
10 Years 47,520.000 48,431.662 1,968.500 50,400.161 99.97 11.9986 11.6592
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20 Years B I D R E J E C T E D
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Total 141,710.900 144,678.304 5,648.851 150,327.153
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