T-bills auction beats target; yields mostly flat

KARACHI: The government on Wednesday raised Rs662.8 billion through the auction of Market Treasury Bills (MTBs), beating its target of Rs550 billion, results issued by the State Bank of Pakistan (SBP) showed.

The yields ended little changed as markets expect interest rates to remain steady, with the inflation appearing to be well in check in the coming months. The SBP’s Monetary Policy Committee has indicated near-term stability in the policy rate at least for the next policy.

“Forward guidance has helped ease uncertainty on interest rates at least in the short run. Moreover, if needed, SBP has mentioned it will be a gradual increase. This will help businesses outside the capital market to plan their industrial expansions,” said Muzammil Aslam, a CEO at Tangent Capital.

Aslam said in the previous auctions investors were more interested in short-term paper than long-term because of limited upside on bond prices.

“SBP has highlighted stable rates. However, if inflation remains contained then SBP may attempt to reduce the rate. This will bring investors interest back to the bond market,” he said.

Inflation eased to 5.65 percent in January from 8 percent in the previous month.

The cut-off yield on the three-month paper edged up by two basis points to 7.1799 percent from 7.1597 percent in the previous auction held on January 27.

The yield on the six-month paper was unchanged at 7.4900 percent, while on the 12-month short-term local currency debt it clocked in at 7.7989 percent, unchanged from the previous auction. “There’s good spread between policy rate and cut-offs, giving ample incentive to investors for taking exposure. They get the funding at policy rate and receive the T-bill yield which is a good spread,” said Samiullah Tariq, a head of research at Pak-Kuwait Investment Company.

The participation behavior of the latest auction showed investors heavily participated in the six-month paper. Earlier, in the previous auction, their participation was seen in the shortest tenor three months T-bill. In the fresh auction, banks’ participation in the six months T-bills stood at Rs774.6 billion. Total participation was Rs1.281 trillion.

The central bank said it sold Rs161.2 billion worth of three-month paper, Rs496.4 billion of the six-month paper, and Rs5.2 billion of the 12-month paper.

The SBP kept the policy rate steady at 7.0 percent last month. It expects inflation to fall within the previously announced range of 7-9 percent for FY2021 and trend toward the 5-7 percent target range over the medium-term.

Some bankers said the substantial monetary easing was pushing global commodity and oil prices higher and would keep pressure on food and energy inflation locally. The measures were being taken by the government to contain this impact but results were yet awaited, they added.