PIB auction flops

KARACHI: The government has rejected all the bids for fixed-rate Pakistan Investment Bonds (PIBs) at an auction on Wednesday as investors asked for higher returns, analysts said.

The government received bids of Rs194 billion against the target of Rs100 billion. However, it rejected three-year, five-year, 10-year and 15-year long-term papers. It didn’t receive any bids for the 20 and the 30 years PIBs.

It was the first PIB auction after the policy rate hike of 25 basis points by the State Bank of Pakistan last month.

Analysts said the latest auction showed that the government did not show any interest to raise financing through long-term papers to meet its borrowing requirements. It wants to reduce the rates being offered on the costly PIBs.

However, the banks were expecting higher rates as the government was forced to borrow from the commercial banks as it can’t borrow from the SBP and the foreign financing remained dried due to suspension of the International Monetary Fund’s loan programme.

Analysts said banks are highly interested in long-term investments because trading of PIBs in the secondary market is attractive.

Besides, the secondary market yields in short-term Market Treasury Bills (six-month) are trading at 106 bps premium to the existing policy rate, according to analysts. Returns on T-bills went up because of the tightening of the monetary policy in September.

The SBP is set to sell Rs825 billion worth of fixed and floating rate PIBs in October-December, 2021.

Analysts see a sharp hike of 50-100 bps in policy rate next month due to stubborn inflation, weaker rupee and the higher current account deficit.