Short-term government securities: cut-off yield registers another 15 basis points increase

The cut-off yield on short-term government securities continued to surge and registered another 15 basis points (bps) increase in the auction held on Wednesday. Since the announcement of the federal budget 2015-2016 (FY16), the cut off yield on short-term government papers (Market Treasury Bills) and long-term papers (Pakistan Investment Bond) is on surge mainly due to new tax measurers for the banking sector announced by the federal government in the budget.
Post budget this is the second increase in the yield as in the previous auction held on June 10, 2015 cut off yield of T-bills was moved upward by 18 bps. Cumulatively, cut off yield of Market Treasury Bills (MTBs) increased some 33 percent in the last two auctions, held after the budget. Analysts said that the recent increase in the cut-off yield is as per market expectation as the federal government has increased tax on the banks.
On behalf of federal government, the State Bank of Pakistan (SBP) conducted MTBs auction on Wednesday for the sale of three-month, six-month and 12-month and received bids amounting Rs 107.592 billion with realised value of Rs 105.549 billion. Most of bids were received for three-month period as interest rate is on lower level and banks are preferring short-term investment. Received bids includes Rs 90.767 billion for three-month, Rs 14.825 billion for six-month and Rs 2 billion for 12-month. The federal government accepted bids amounting Rs 91.292 billion (Rs 89.569 billion realized value). The borrowed amount is much higher than the actual target of Rs 50 billion set for this auction. However, the cut off yield on all MTBs rose slightly and reached near seven percent.
The cut off yield of three-month MTBs set at 6.9308 percent up from 6.7963 percent, depicting an increase of 13 bps and its some Rs 76.565 billion (realized amount). For the six-month, bids amounting Rs 11.043 billion were accepted at a cut off yield of 6.9513, up 15 bps from 6.8011 percent. Similarly, the cut off yield of 12-month T-bills rose by some 15 bps to fix at 6.9710 percent up from 6.8221 percent and some Rs 1.87 billion (realized value) were borrowed.
It may be mentioned here that following the cut in the key policy rate, the cut off yield of short-term government papers was declined up to 27 bps in the auction held on May 27. However, with 33 percent increase in the two post budget MTBs auctions, the cut off yield on short-term government securities again reached at the same level due to new tax measures.