The cut-off yield on short-term government securities rose up to 18 basis points (bps) in the auction held on Wednesday, mainly due to higher tax for banking sector. Analysts said the federal government has increased tax on the banking sector in the next fiscal year's budget, which resulted in some hike in the cut-off yield of short-term papers.
According to budget announcement, all incomes of banks will be taxed at 35 percent besides 4 percent Super Tax. Therefore, in order to maintain the profitability, banks have bid with higher cut-off yield in the first post-budget auction for MTBs, they said. The State Bank of Pakistan (SBP) conducted the first MTBs auction on June 10, 2015 for the sale of 3-month, 6-month and 12-month and received bids amounting to Rs 101 billion with realised value of Rs 98.7 billion. Most of the bids were received for 3-month period. The received bids included Rs 66.78 billion for 3-month, Rs 27 billion for 6-month and Rs 7 billion for 12-month.
The federal government accepted bids amounting to Rs 71.88 billion (Rs 70.33 billion realised value). The borrowed amount is higher than the actual target of Rs 50 billion set for this auction. However, the cut-off yield for all MTBs rose slightly in the wake of recent increase in tax rate for the banking sector in the federal budget 2015-16.
The cut-off yield of 3-month MTBs was set at 6.7963 percent, up by 18 basis points (bps) with accepted bids amounting to Rs 55.22 billion (realised amount). For the 6-month, bids worth Rs 9.965 billion were accepted at a cut-off yield of 6.8011 percent up from 6.6511 percent.
Similarly, the cut-off yield of 12-month T-bills rose by 6 bps to fix at 6.8221 percent and as a result some Rs 5.15 billion were borrowed. In the previous auction held on May 27, following reduction in the key policy rate, the cut-off yield of short-term government papers fell up to 27 bps. However, it again moved up due to higher tax rate.
The SBP has issued the following: Tenders for sale of 3-Month, 6-Month & 12-Month Government of Pakistan Market Treasury Bills were invited by the State Bank of Pakistan, Karachi through Primary Dealers on Jun 10, 2015. Bids were opened at 12:00 hours on Jun 10, 2015 which was received as follows:

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                                           (Rs  In Millions)
                         Realised Value           Face Value
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03-Month                  65,755.058              66,780.000
06-Month                  26,401.010              27,300.000
12-Month                   6,554.600               7,000.000
Total                     98,710.668             101,080.000
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Out of the above bids, the accepted bids are as under:
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Maturity     Cut-Off     Weighted      Realised         Face
Period        Yield     Avg. Yield      Amount         Value
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03-Month     6.7963       6.7436     55,222.968   56,080.000
06-Month     6.8011       6.7496      9,964.635   10,300.000
12-Month     6.8221       6.7826      5,151.550    5,500.000
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Total                 70,339.153     71,880.000
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