T-bills margin declines on rate cut

The margin on short-term government securities further declined up to 140 basis points (bps) due to cut in key policy rate. The first auction of Market Treasury Bills (MTBs), after the announcement of monetary policy, was conducted by State Bank on Wednesday (March 25, 2020) for the sale of 3-month, 6-month and 12-month MTBs and received bids amounting to Rs 1.346 trillion with a realized value of Rs 1.247 trillion.
Most of the bids were received for one-year T-Bills as banks are expecting further cut in key policy rate in coming months. The received bids include Rs 337.805 billion for 3-month, Rs 209.46 billion for 6-month and Rs 799 billion for 12-month.
The federal government accepted bids amounting to Rs 551.7 billion (Rs 522.42 billion realized value). The borrowed amount is slightly lower than the actual target of Rs 500 billion set for this auction.
Like previous auction, the cut-off yield on all T-bills declined ranging between 120 bps to 140 bps in the auction held Wednesday. The State Bank of Pakistan (SBP) has cut the policy rate by 225 bps during last one week on lower inflation to support the economy.
In the previous auction held on March 11, the cut-off yield of Market Treasury Bills (MTBs) fell up to 133 bps ahead of rate cut expectation. However, as the SBP has cut the policy rate twice; accordingly, margins on T-bills also reduced further.
The cut-off yield of 3-month T-bills declined by 143 bps to set at 11.2985 percent and some Rs 242 billion were borrowed. For the 6-month, bids amounting to Rs 152 billion were accepted at a cut-off yield of 11.2989, down by 121 bps.
Similarly, the cut-off yield of 12-month T-bills fell some 113 bps to set at 10.8699 percent against Rs 157.5 billion borrowing.