T-bills oversubscribe; yields down

KARACHI: Government’s short-term borrowing costs further declined on Wednesday when the central bank sold Rs91 billion worth of treasury bills at an auction, surpassing the original Rs75 billion target with yields falling on all maturities.
Analysts said the yields were down as anticipated after liquidity rose following 100 basis points cut in interest rate by the State Bank of Pakistan to anchor inflationary expectations last week.
“It was understood that after extraordinary reduction in interest rate yields would go down on all government securities (debt instruments) across the board including treasury bills and Pakistan Investment Bonds,” said an analyst.
“The increased participation by the commercial banks at the latest auction shows both growing demand for the short-term borrowing from the government to meet its budgetary requirements,” he said.
Earlier, the commercial banks were not too keen to invest in treasury bills.
The yields already reached lowest level since 2003 in previous auction held on May 13.
The yield on Pakistan’s six-month benchmark treasury was down 6.6511 percent from 6.8869 percent during the last auction.
The State Bank sold Rs91 billion of six-, three-, and 12-month treasury bills. It sold Rs22 billion worth of six-month paper.
The cut-off yield for the longest, 12 month treasury bills, dropped to 6.7535 percent as compared to 6.8907 percent.
The State Bank sold Rs44 billion of 12-month papers.
The yield for three-month bills fell to 6.6171 percent as against 6.8860 percent in previous auction and the raised amount stood at Rs25 billion. Total bids amounted to Rs95 billion.
Many economists believe with the decline in interest rate, the domestic debt profile of the government will improve with the cost of borrowing will also be reduced.
It will improve maturity profile of the domestic debt and shift government borrowing away from SBP.
The improvement in the maturity profile of debt would help reduce re-pricing and roll-over risks.