SBP sells Rs39.396bln worth of PIBs; yields up

KARACHI: Government long-term bond yields rose at an auction on Wednesday as investors, looking ahead to the central bank monetary stance, focused on prospects of better growth and higher inflation, dealers said.

The State bank of Pakistan (SBP) sold Rs39.396 billion worth of long-term Pakistan Investment Bonds (PIBs). The SBP rejected bids in three previous actions. The raised amount was lower than the pre-auction target of Rs50 billion.    

The SBP has not been auctioning PIBs since October. Last time, the central bank sold Rs220 billion bonds at an auction on September 21. In the fresh auction, a total of Rs10.409 billion of six-month PIBs were sold at 6.8998 percent as compared to 6.7010 percent at the September auction.

The central bank sold Rs28.985 billion of three-month debt at 6.4074 percent compared with 6.1970 percent previously. It also sold Rs1.061 billion worth of 10-year bonds at 7.9414 percent, higher than 7.7995 percent at the previous auction. However, the bids were rejected in 20-year paper.

Analysts said banks modestly participated at the PIBs auction.  “There is a plenty of liquidity in the market to support the government’s funding requirements via short-dated securities [market treasury bills] as opposed to PIBs at a relatively lower yield,” said Shiraz Zaidi, an analyst at Arif Habib Limited.  

All stakeholders are closely watching the SBP’s January monetary policy meeting that is expected to be held later this week. Many analysts foresee the SBP’s monetary policy committee would maintain a status quo for January-February period on expected increase in inflation and widening current account deficit.

In December 2016, the consumer price index inflation witnessed an increase of 3.7 percent as compared to the same month a year ago.      The SBP kept policy rate unchanged at 5.75 percent at the last monetary policy meeting held in November.    

The central bank maintained a status quo in interest rates since the start of the current fiscal year of 2016/17. It reduced policy rate by 25 basis points (bps) in May 2016. Cumulative cut in the policy rate was 75bps during the last fiscal year. The total reduction was 300 bps in the fiscal year 2014/15.