The federal government Wednesday rejected all the bids for long-term investment bonds as banks were seeking higher interest rate, analysts said. They said that most of the bids for the Pakistan Investment Bonds (PIBs) were submitted with higher margin compared to previous auction held on September 21, 2016. Therefore, the government decided not to borrow through PIBs and hence rejected all the bids.
"Banks were very optimistic for higher interest rate and submitted bid averaging 10-20 basis points (bps) higher than the previous auction," said Shahid Iqbal, VP Monetary Market JS Global. As there was no urgency for the borrowing, the federal government rejected all the bids, he added.
"We were already expecting the government will reject the bids as the target was very low (Rs 50 billion) and secondly the banks' move was not realistic," he said. A few bids of 3-year bonds were submitted at a cut-off yield of 6.19 percent, while the remaining bids were higher up to 12 bps. The cut-off yield of 5-year long-term bonds began from 6.87 compared to 6.70 percent of the last auction. In addition, bids for 10-year PIBs were received with 18-20 bps higher rate compared to previous auction, Shahid said.
He said the government mainly conducts auction for PIBs on a monthly basis and this is the second auction or month, in which the government has not borrowed a single penny and rejected all the bids. Previously, all the bids for PIBs were rejected on October 19, 2016.
The State Bank of Pakistan (SBP) conducted the auction for PIBs for 3-, 5-, 10-, and 20-year maturity on November 16, 2016 to raise some Rs 50 billion for the federal government to meet its increasing financial requirements. Banks aggressively participated in the auction and overall, bids worth Rs 113.840 billion with total realised value of Rs 116.960 billion were received for the sale of 3-year, 5-year and 10-year long-term government securities, however no bid was received for 20-year variety.
As current interest rate is on the lower side, most of the bids were received for 3-year variety. The 3-year long-term papers fetched bids amounting to Rs 61.919 billion (total realised value). Similarly, some Rs 42.011 billion bids were submitted for 5-year and Rs 13.030 billion for 10-year. As banks were seeking higher interest rate on the submitted bids, the federal government rejected all the bids.
In the auction for PIBs held on September 21, 2016, the federal government borrowed some Rs 219.152 billion through the auction for 3-, 5- and 10-year bonds at a cut-off yield of 6.1970 percent, 6.7010 percent, 7.7995 percent, respectively. The borrowed amount in the last auction was much higher than the tentative target of Rs 100 billion.
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