Auction for MTBs: government borrows Rs 229 billion

12 May, 2016

The federal government Wednesday borrowed some Rs 229 billion on slightly higher rates in the auction for short-term government papers. Banks aggressively participated in the auction, conducted by State Bank of Pakistan (SBP), for the sale of 3-month, 6-month and 12-month Market Treasury Bills (MTBs) and the overall received bids were some 147 percent higher than the target.
The auction fetched bids amounting to Rs 464.016 billion with realised value of Rs 447.213 billion against the target of Rs 200 billion set by the government for this auction. The received bids included Rs 155.962 billion for 3-month, Rs 128.004 billion for 6-month and an amount of Rs 180.050 billion for 12-month MTBs. Out of the received bids, the federal government borrowed Rs 234.616 billion (Rs 229.238 billion realized value). While the cut-off yield of all T-bills increased slightly up to 9 basis points (bps).
Some Rs 122.612 billion (realized value) were raised at 6.2591 percent, up 9 bps, against the sale of 3-month T-bills. The cut-off yield of 6-month short-term papers moved up 8 bps to 6.2665 percent and some Rs 96.695 billion were borrowed. Similarly, Rs 9.9 billion worth T-bills of 12-month were sold at 6.2758 percent, up 6 bps. In the previous auction held on April 27, 2016, the Ministry of Finance rejected all the bids received for the sale of short-term government papers as the offered cut-off yield was higher than expectations and given a clear-cut signal to the market that it will not borrow at higher rates.
With rejection of all the bids in the last auction, banks realized that the government is not in the mood to borrow on higher rates, with the result banks aggressively participated in the auction and the offered cut-off yield in this auction declined compared to previous auction, wherein all the bids were rejected.
In the last auction, held on April 27, offered cut-off yield (maximum) was some 32 bps higher than previous auction held on April 13, 2016, of which the ministry rejected all bids. Analysts said political uncertainty, rising oil prices in the world market and the announcement of Super Tax for another year created some panic in the market, of which margin on MTBs moved upward in the secondary market.

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